COVID-19 will affect IT sector temporarily: Analysts

As per analysts and executives of leading firms, in the first half of the financial year the It sector may incur a temporary set back but it is expected that in the later half it can recover.

“While the scare of rising global infection and death is still playing out, investors seem to be ignoring some of the positives such as the quick bounce-back in China, after the flattening of the Covid-19 curve,” said Anand Rathi Research in a note to its investors. There could be job losses at mid and small-tier companies but it won’t be significant, they said.

It is also said that the Indian IT growth in FY21 could be three percent lower, assuming a recovery in the second half of FY21 and, therefore, there could be no reduction in headcount. A lot of IT companies during this crisis has moved to 90 percent delivery home, resulting in five percent loss in productivity days.

Some of the top executives at major IT firms across the country who did not want to be named – since few them have slipped into the silent period ahead of the Q4 results – said that there could be a short-term impact on the revenues but in the long term, certain deals might get re-sized. Although, fears of major changes are as yet to be unfound.

“There is obviously less visibility ahead but going forward, the impact will be far lesser,” one of the executives said.

Larger firms like Mphasis, LTI, and Mindtree have been more efficient. But, smaller companies have taken a harder hit, given their concentrated delivery.

The problem is more on the demand side, than on supply. On a net basis, we assume normalisation (no pent up) in FY22, the note said.

With regard to Infosys, the second-largest IT services company in the country, an analyst said the company has the ability to efficiently manage from remote systems to ensure timely delivery of the outsourced business.

“The Covid impact has been seen majorly on consulting business while outsourcing business still remains robust. Direct exposure to the COVID19 affected regions and verticals is sub 1 percent and it has not seen any meaningful delivery disruption either,” Axis Securities in its March 30 note said.

The large deal TCV (total contract value) data has been very healthy for the first nine months of FY20 at $7.3 billion up 56 percent on year on year basis, which gives comfort to growth in the near-term.