US banks remain a worry for Indian IT firms
Muted revenue growth in the December quarter (Q4CY23) has prompted large US banks to slow down their IT-related expenditure. Data compiled by Antique Stock Broking shows that six large US banks' average technology spending growth softened to 5.7% in Q4CY23 from 6.4% in Q3CY23. On an aggregate basis, these banks reported low single-digit revenue growth of 1.8% year-on-year in the quarter, a sharp deceleration from 9% in the previous quarter.
This matters because the banking, financial services and insurance (BFSI) sector has been a crucial contributor to revenue growth at Indian IT services firms. But the looming demand uncertainty globally has weighed heavily on the BFSI segment. This pain was accentuated by the US banking crisis last year, which caused banks to rethink their spending, including on IT.
Globally, there is an increased emphasis among BFSI clients on insourcing and investing in critical projects with immediate returns on investment, said analysts. This has kept growth in the BFSI vertical sluggish in recent quarters. Aggregate revenue from the BFSI vertical at the top four Indian IT companies declined sequentially by 1.6% in Q3FY24, according to Ambit Capital.
This contrasts with the latest management commentary on a revival in the BFSI sector for India IT giants. Tata Consultancy Services Ltd believes that the BFSI segment will register growth from Q4FY24 onwards and the spending momentum should improve in the coming quarters as its recent deals win ramp-up in Q4FY24 and Q1FY25. However, close competitor Infosys Ltd said inflation, an uncertain macroeconomic environment, and delayed decision-making continue to affect the financial services sector and it does not expect a meaningful pick-up in the next few
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