For IT firms, deal wins paint a grim picture
The revival hopes for the information technology (IT) sector hinge significantly on the rate of deal acquisitions, yet the December quarter (Q3FY24) witnessed a lukewarm performance in this arena. Following an exceptional second quarter, top-tier IT firms experienced a slowdown in deal wins during Q3. While moderation was expected due to the quarter's typical seasonal downturn, the absence of mega deal announcements and the trend of lengthier deal durations have raised concerns.
Among the large-caps in the sector, only Infosys Ltd reported a mega deal in the last quarter. Industry-wide management commentary has highlighted a continued slowdown in decision-making processes, leading to deal delays and subdued bookings. “Ex-Infosys, last twelve month deal flow growth was 5-18% year-on-year with Tech Mahindra down 41% year-on-year," said a report from Ambit Capital.
Subdued deal activity is likely to impact short-term revenue growth across the sector. Consequently, Infosys has adjusted its FY24 growth guidance to 1.5-2% from the previously projected 1-2.5% in constant currency (CC) terms. HCL Technologies narrowed its FY24 CC revenue growth guidance to 5-5.5%, and Wipro has guided for a -1.5% to 0.5% sequential CC revenue growth in IT Services for Q4, which is lower than some analysts’ estimates.
The problem, however, is that although IT companies are yet to report any notable improvement in discretionary IT spending by clients, the Street is already talking about revenue recovery during FY25. In fact, cost-reduction/optimization deals continue to be the focus area of clients. “Our analysis indicates that many enterprises have outlined cost savings targets that stretch into 2024.
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