Rate hikes keep BFSI space stable for IT cos

Currency Volatility

- Major impact on startups and fintechs, which have exposure to cryptocurrency-related business

- TCS' revenues from BFSI crossed $10bn in FY22

- Similarly, HCL Tech, Wipro, and Tech Mahindra along with mid-tier cos have large BFSI contribution

- Rate hikes will benefit banks

Bengaluru: Indian IT services companies are likely to remain unaffected by the current inflationary environment seen globally and subsequent market volatility emanating from global uncertainty.

Experts and company officials are of the opinion that the biggest vertical of most domestic IT firms, BFSI (banking, financial services, insurance) is likely to perform well as most engagements are multi-year in nature with large banks.

"Indian IT firms have deep engagement with large financial institutions like traditional banks operating in retail and commercial banking space. These deals are usually large, spreading over several years. Also the deal pipeline in BFSI vertical looks healthy for most service providers. So, the current meltdown of cryptocurrencies or market volatility may not impact Indian IT firms," said Pareekh Jain, an engineering services expert and Founder of Pareekh Consulting.

He said that many technology startups have exposure to cryptocurrency-related businesses. Therefore, startups and fintechs are expected to get impacted much due to market volatility.

Management of large IT services firms have exuded confidence of sustaining the momentum seen in the BFSI vertical in coming quarters.

Market leader Tata Consultancy Services (TCS) crossed $10 billion revenue mark from BFSI vertical in FY22. During the fourth quarter of FY22, the Mumbai-headquartered company bagged outsourcing contracts worth $3.2 billion in BFSI vertical out of total order book of $11.3 billion.

"(As far as) confidence in the overall demand outlook, it looks very good. The kind of deal wins and the momentum that we have, we are clearly in a better position now compared to where we were same time last year. So, that should augur well for our growth and our aspirations for FY23," NG Subramaniam, Chief Operating Officer of TCS, said in an analyst call last month. Similarly, India's second largest IT services company Infosys has also given a bullish guidance with regard to its BFSI vertical.

"On financial services, the overall demand environment remains very strong for us in this segment. We see a good pipeline there. There were significant large deal wins for the year and in the quarter and we remain confident with the growth in financial services," Salil Parekh, CEO of Infosys, said announcing the fourth quarter results. Similar is the case for other large cap firms including HCL Technologies, Wipro, and Tech Mahindra along with the mid-tier companies with large BFSI contribution. However, analysts also pointed out that discretionary spend and new deals may get affected though current pipeline of deals put domestic IT firms on a good stead.

"We believe rising interest rate environment will benefit banks, and spends wouldn't soften soon, but there might be reduction in discretionary spends and delay in decision making which might soften revenue momentum," ICICI Securities wrote in a note.

Indian IT firms have deep engagement with large financial institutions like traditional banks operating in retail and commercial banking space. These deals are usually large with spreading over several years. Also the deal pipeline in BFSI vertical looks healthy for most service providers. So, the current meltdown of cryptocurrencies or market volatility may not impact Indian IT firms

- Pareekh Jain, founder, Pareekh Consulting