TCS, Infosys, HCL Tech, and Wipro have different reactions to the slowdown in banking, financial services, and insurance
- The banking, financial services and insurance segment for most IT companies in India showed underwhelming growth in the third quarter of the financial year 2020.
HCL Technologieswas the only company to report double-digit growth among the Tier-I group.
- Companies remain cautiously optimistic about the coming quarter pegging growth in BFSI to deals in pipeline getting finalised.
All 3 companies make nearly a third of their revenue from the BFSI segment.
However, all three companies and their shareholders have had mixed reactions to the slowdown in BFSI.
BFSI is a macro challenge, not a Wipro challengeDespite Wipro’s marginal growth in BFSI, earnings from the segment accounted for nearly one-third of its overall revenue. Half of Wipro’s top clients are from the BFSI segment. However, over time, the share of revenue from the top five has been declining.
HCL Tech remains cautiously optimistic
Regardless of how companies expect demand to move, overseas clients have been taking more time to finalise deals across the board. However, HCL Technologies CEO C Vijayakumar feels that it’s nothing new.
“I would say that it doesn’t have anything to do with the macro environment. It’s just the whole decision-making process. We’ve seen momentum in the last few days and we believe our Q4 will be a strong booking portfolio,”
Given their performance, it’s not surprising that HCL Technologies leadership has a positive outlook for the coming days. “The best way that we define the demand environment is to really look at the deal pipeline. Our pipeline is at a historic peak. Our pipeline is very good. So I’m optimistic about the demand environment,” said Vijayakumar.
Infosys feels BFSI is a mixed bag
While expecting strong demand from clients, Infosys claims that BFSI is somewhat of a ‘mixed bag’.
“We have seen more than anticipated further impact in Europe and the rest of the world. However, we have, on the positive side, seen some growth in North America — banking in North America. That's been a mixed bag. We expect some degree of softness to continue in the coming quarters,” said UB Pravin Rao, COO at Infosys, during the company’s earnings call on 10 January.
The company increased its full-year guidance for revenue growth to 10-10.5%. “Q3 results further underscore that we remain steadfast in our journey of sustained client relevance and deepening engagement with them,” said Salil Parekh, Infosys CEO.
TCS blames structural challenges
Tata Consultancy Services (TCS), the world's third-largest IT services company, has spun a totally different narrative to the BFSI slowdown. “We are gaining market share,” declared N Ganapathy Subramaniam, COO of TCS, at the post-earnings conference.
To be clear, the subdued demand should be as bad on TCS as it is for Infosys or Wipro. Moreover, North America is the company’s biggest market — it accounts for more than half of TCS’ revenue — and, BFSI witnessed the slowest growth in that geography of a mere 4.1%.
But the management has a different take on it. “BFSI was a complex story. While there have been no budget cuts at our clients, they want more with less and want to optimise their operations,” CEO Rajesh Gopinathan said during the call with analysts, adding that the company managed to bag 20 new deals in the quarter.
Simply put, what the management is saying is as the sector slows down, companies are investing in optimising operations to make themselves cost-competitive.
And, according to the management, TCS’ size and scale put it in a better position to corner the lion’s share of the market— a move that will pay off rich dividends when the demand improves. Investors will have to wait and watch to see if the strategy pays off.
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