Summary
The second quarter has marked a notable resurgence for IT companies, with significant deal wins following an extended period of subdued activity. Tata Consultancy Services (TCS) notably secured four major contracts within the initial two months of this quarter, partnering with prominent names including Primark, Rolls-Royce, the Sydney Marathon, and most recently, McDonald’s Philippines. In a competitive landscape, TCS’s primary competitor, Infosys, achieved three notable agreements in July, trailing only Cognizant in terms of the number of deals closed. Infosys’s signings included collaborations with Sector Alarm, the Delaware Department of Labor, TDC Net, ServiceNow, Metro Bank, and the Finnish postal service provider, Posti Group. Kumar Rakesh, an associate director at BNP Paribas, emphasized that the indicators from their deal tracker reveal a sequential improvement in deal signings as of September 2024. He stated, “Cost savings continue to dominate the theme for deal signings. Over the past two years, enterprises have increasingly prioritized cost efficiency, leading to longer contract tenures.” Furthermore, Tech Mahindra, the fifth largest IT firm, successfully secured two contracts with the Doha telecommunications firm Ooredoo and the Marshall Group, which is involved in aerospace innovation. Industry experts suggest that while demand is slowly recovering, it is primarily characterized by smaller-sized, tenured deals, although some transformative agreements have been initiated. Yugal Joshi, a partner at IT outsourcing consultancy Everest Group, noted, “The turnaround for the services industry has been delayed. While the current climate does not present numerous favorable conditions, several substantial deals have been finalized that could positively affect revenue streams in 2025 for particular providers.” Despite these advancements, closures of large deals across the industry remain tepid, primarily due to the significant upfront costs they require, which subsequently influence profit margins and prolong the timeline for revenue realization. Sumit Pokharna, vice president at Kotak Securities, remarked, “Although demand shows signs of improvement, the pace remains gradual. Most enterprises are focusing on cost efficiency in their deals under the prevailing circumstances. This creates a win-win situation for both parties involved. Some enterprises are also initiating transformations, and specific strategic vendors are benefiting from broader partnerships by leveraging their capabilities across maintenance and modernization services. These types of deals, however, tend to have extended decision-making timelines and gradually convert into revenue.” In conclusion, while IT companies are witnessing a revival in deal activity, the nature of these deals reflects a cautious yet strategic approach towards cost savings and longer-term agreements that can potentially enhance their revenue outlook amidst ongoing economic uncertainties.
Original Source: m.economictimes.com
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