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IT companies do the balancing act with clients
Inflationary pressures and the scare of a recession looming over economies worldwide have made customers cautious, the management of many IT companies stated in their respective analyst calls after announcing their Q1 FY23 numbers.
“We have been spending time with clients and are seeing caution in client environment, especially with rising input costs and geopolitical issues,” Sudhir Chaturvedi, President Sales & Executive Board Member of mid-tier IT firm LT Infotech, said in the analyst conference call on July 14.
He added that this leads to short-term acceleration in demand as most clients want to complete their transformation agenda with the available budget.
Debashis Chatterjee – Managing Director and CEO – Mindtree, went on to state that their clients are ‘cautiously optimistic.’
Mindtree and LTI are in the process of being merged into one entity which is pegged to make it the 5th largest IT firm in India. The companies announced this merger in May this year.
This case is not just with clients of mid-tier IT companies. The management of Tata’s group’s cash-cow Tata Consultancy Services(TCS) also said in its analyst call that while their clients have not cut technology budgets, they are worried about macro factors.
“We have not seen any budget cuts or deferments so far. In conversations with clients, we see continuing investments in technology. Some clients, particularly in Europe, have expressed concerns about the macroeconomic fallout of the ongoing conflict there. But the predominant sense is that technology spending will be resilient. That said, given the macro level uncertainties, we remain very watchful,” Rajesh Gopinathan – Chief Executive Officer, said in the company’s analyst call.
If there is an economy-wide slowdown, it is likely to have some ripple effect across all lines of spend, but the resiliency of technology in the overall mix is unlikely to get diluted from where it has been in the last two years, Gopinathan added.
Meanwhile, HCL Technologies has said they are working with clients for better pricing due to wage inflation.
In the US, inflation is at a record high. It has exploded, touching 13%, with the wholesale price index breaching double digits at 11.3% and the consumer price index soaring to 9.1%. Even in India, June’s Consumer Price Index-based inflation (CPI) came in at 7.01%. This is the sixth straight month of headline inflation, exceeding the MPC’s target of 4(+/-2)%.