IT services contracts signed in February 2020 suffered a monthly decline of 33%

Following this week’s results announcements from leading Indian IT services vendors Wipro and TCS;

Rupantar Guha, Senior Analyst, GlobalData offers his view regarding the impact of COVID-19 on Indian IT services:

“Both Wipro and TCS reported year-on-year declines in net profit in the three months to the end of March 2020. Wipro did not give revenue guidance for fiscal 2021 due to uncertainty about how the COVID-19 crisis will play out.

“Industry estimates suggest that India’s IT services firms will see revenues fall by up to 7% between April and September 2020. Meanwhile, share prices of the four leading IT firms, including TCS, Infosys, HCL and Wipro, have dropped by an average of 25% since January 2020.

“With India currently under lockdown and the global economy at a standstill, IT firms will struggle to acquire new contracts. GlobalData’s IT contracts database reveals that the number of IT services contracts signed in February 2020 suffered a monthly decline of 33%. Compared to February 2019, there was an annual decline of 37%. Even in January 2020, the number of IT services contracts was down 15% from the month before.

“The lion’s share of the Indian IT firms’ revenue comes from services provided to enterprises in the US, UK, and Europe. Across these markets, major IT projects are being cancelled or put on hold, leaving very little new business for the IT services sector. Existing projects are also being scaled back to the bare minimum.

“Remote working is a key challenge for India’s IT vendors. For between 15% and 30% of employees across TCS, Infosys, HCL and Wipro, working at home is not an option. Also, the majority of IT support staff are not equipped to work from home, lacking the equipment (such as laptops), necessary connectivity, and the experience necessary to complete tasks effectively. To navigate through the current crisis, IT firms must examine their business models and capabilities, and ensure they are providing the flexibility that clients need.

“A focus on collaborative tools, cloud migration and optimization, and process automation will help them serve clients effectively. They must innovate to aid clients in areas such as business continuity and disaster recovery, supply chain, and remote working. Use of data analytics to quickly make logistical shifts could be an opportunity for them to demonstrate their ability to help clients in difficult times.”