India’s outsourcing industry, valued at $250 billion, experienced a surge in deal activity in the third quarter, with nearly 60 deals being signed, according to data from BNP Paribas. This increase in deals, up from 47 in the previous quarter, indicates a gradual recovery in the industry, partly fueled by seasonal demand. In September alone, key players like Infosys, Accenture, and Cognizant secured a total of 26 deals. Infosys inked agreements with Proximus group, LIC, and Metro Bank, while Cognizant announced deals with Kombit, England and Wales Cricket Board, and Mecwacare. Wipro also secured a deal with JFK International Air Terminal.
The optimism in the industry is on the rise, especially in the banking and financial sector, particularly in North America. Analysts attribute this positive outlook to the controlled US inflation, ongoing interest rate cuts, and the potential strengthening of the dollar post the US presidential election. As the industry heads into the next year’s budgeting cycle, there is a higher level of certainty with regards to inflation and the Fed rate cuts.
Although the September quarter did not see any major mega deals, top-tier IT firms reported sequential increases in deal wins. Infosys and HCLTech revised their business growth projections upwards. Managed IT services saw a 15.1% year-on-year increase in total deals, reaching a record $26.7 billion, driven by mega-deal activity and longer deal durations.
Looking ahead to the December and March quarters, there may be a slight softening due to the holiday season. The second half of the financial year typically experiences a slowdown in IT services, as clients delay projects and spending. However, management commentary from most companies in the September quarter was positive, with expectations of increased deal activity going forward.
In October, there were 16 new deal wins, with companies like Cognizant, TCS, Infosys, and Tech Mahindra securing multiple deals. These deals encompassed a mix of renewals and new projects, many of which focused on digital transformation. The use of GenAI capabilities in these deals makes them technology-agnostic.
Ramkumar Ramamoorthy, a partner at tech growth advisory firm Catalincs, views the deal momentum as a positive indicator of the industry’s long-term strength and client relationships. However, he notes that understanding the specifics of these deals, such as whether they are renewals or new business, and their focus on business operations or transformation, is crucial in assessing their impact on revenue and margin.
Overall, September was a busy month for IT services firms, with a strong indicator of potential earnings estimate upgrades for the sector. The industry is poised for continued growth and innovation as deal activity remains robust.
