November 20, 2024: India’s $250 Billion outsourcing industry experienced a notable uptick in deal momentum in the September quarter, according to data from BNP Paribas. With almost 60 deals signed, up from 47 in the previous quarter, the industry is signaling signs of revival. However, experts highlight that while this growth partly reflects seasonal demand, underlying indicators suggest a more optimistic outlook for the sector going forward.
The month of September alone witnessed 26 significant deals, underscoring a robust close to the quarter. Major players like Infosys and Accenture led the charge, each securing six deals, while Cognizant announced three strategic agreements. Highlights included Infosys’ partnerships with Proximus Group, LIC, and Metro Bank, while Cognizant sealed contracts with Kombit, the England and Wales Cricket Board, and Mecwacare. Meanwhile, Wipro inked a deal with JFK International Air Terminal, contributing to the sector’s active quarter.
Analysis of BNP Paribas Report: What This Means for the IT Sector
The uptick in deal activity signals more than just a seasonal bump; it represents a gradual recovery bolstered by improving economic conditions and a more favorable global outlook. The revival of the banking and financial services sector, particularly in North America, is pivotal. With inflation stabilizing in the United States and the Federal Reserve beginning to cut interest rates, there is a renewed sense of economic certainty. The BNP Paribas report suggests this stability is essential for IT service providers, as a stronger dollar and reduced economic volatility typically translate into higher outsourcing demand from North American clients.
Kumar Rakesh, associate director at BNP Paribas, emphasized that the industry is entering next year’s budget cycle with higher confidence. “Inflation is coming under control, and Fed rate cuts are no longer just a hope but are already in progress,” Rakesh noted, underscoring a more promising landscape for IT firms as they approach 2024.
Despite the absence of mega-deal announcements, the September quarter saw top-tier IT companies, including Infosys and HCLTech, revise their growth projections upward. Managed IT services remained a key driver, with total deals up 15.1% year-on-year to a record $26.7 billion, propelled by increased mega-deal activity and longer contract durations, as highlighted by Nuvama Institutional Equities.
Seasonal Challenges and What Lies Ahead
While the September quarter’s strong performance bodes well for the sector, analysts caution about a seasonal slowdown in the coming months. The December and March quarters according to the BNP Paribas report typically experience subdued activity, owing to the holiday season and post-furlough period. Clients often delay spending and project launches, leading to fewer working days for IT services employees.
However, industry commentary remains optimistic according to the BNP Paribas report. After seven quarters of workforce expansion, companies have paused new hiring, focusing on deal execution and operational efficiency. October saw a continuation of this trend with 16 new deal wins. Cognizant led with three new partnerships, followed by Tata Consultancy Services (TCS), Infosys, and Tech Mahindra, each securing two deals.
A report from BNP Paribas described September as an “exceptionally busy month” for deal wins, signaling that the three-month rolling sum of deal signings remains a strong predictor of future total contract value (TCV) growth. The report also hinted at the likelihood of positive earnings estimate revisions for the sector.
Future Outlook
Going forward, the Indian IT outsourcing industry appears poised for a period of cautious optimism. With economic conditions improving and North America’s banking sector stabilizing, IT service providers are well-positioned to capitalize on new opportunities.
Analysts will be closely watching for any signs of continued growth or challenges that could emerge in the year-end quarter. While the sector may face temporary slowdowns, the overall momentum seems poised to sustain, supported by a more predictable economic environment and strategic deal-making by top players.
