The banking, financial services and insurance (BFSI) sector might just save the day for information technology (IT) companies, industry officials and analysts alike seem to suggest.
“Management commentary from IT services companies has also indicated that 2013 budgets are looking better than 2012 without any major delays in spending patterns. Further, our industry checks suggest spending uptick in financial services vertical (BFSI) driven by increase in regulatory compliance spending and some pockets of pent-up demand.
This is in line with our view that regulatory related IT spending may provide upside risks to street estimates over the next 3-4 years,” Goldman Sachs analysts Rishi Jhunjhunwala and Girish Ramkumar said in a note dated March 15.
The CFO of a mid-size IT services company couldn’t agree more. “After a collapse of sorts in the mid-2000s, the BFSI sector is now seeing an uptick in terms of IT spend. Though we are yet to see any incremental rise in the budget allocations, there is a strong hope that BFSI would start contributing significantly to IT services companies. The impact of flat budgets in sectors like manufacturing is likely to be nullified by the increase in BFSI budgets,” he said, requesting anonymity.
Global surveys, however, suggest growth in overall IT spending would be flat, the Goldman Sachs duo noted. “2013 global IT spending forecast is maintained at 3% (vs 2% in 2012). While the macro/micro factors have improved modestly, it is not quite enough to raise the forecast currently.”
According to the analysts, around 76% of respondents expect IT budgets to be flat to up (vs 75% in December), suggesting more corporates are converging towards a low single-digit IT spending growth scenario.
Interestingly, analysts see an improvement in the macroeconomic indicators, particularly those related to the US, which continues to remain a key market for the Indian IT sector.
IT companies have also pinned their hopes on growth in IT spend in the domestic market, particularly in the government sector.
“A comparison of India’s spends with more developed economies shows that the overall spend as a percentage of GDP is less than 1% — significantly lower than the global average of 2.5%. More developed economies typically spend more on IT and as the economy grows, spending is likely to increase significantly. Greater spends lead to productivity improvement through process automation, incremental business on electronic medium and real-time access to information,” said a Boston Consulting Group-CII Report on IT Enablement of Indian Business.