 "Clients' IT budget likely to see marginal growth after two dull years")
Based on early discussions with the global customers, Indian information technology (IT) services companies expect clients' technology budgets for 2014 to be 'flat-to-marginally higher'.
Customers in the key markets, the US and Europe, typically start looking at their budgets for the following year in November, and the same are finalised before Christmas holidays in December. Preliminary talks with clients have also suggested that there may be a rise in discretionary spending during 2014.
“We are definitely seeing a resurgence in some of the macro-economic indicators, especially in the US, and I think that will hopefully translate into a higher degree of (IT) spend,” Ashok Vemuri, president and CEO at iGate told Business Standard. “The spend complexion is going to change. What you will see is that decision making will probably begin to move a little down the hierarchy,” he added.
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Over the past two years, client budgets have remained flat or have even fallen marginally year-on-year basis, amid uncertain business environment and pressure on profitability.
Market participants echo Vemuri's view, as most expect the trends in clients' consumption patterns to change. They also expect clients to be more 'bold’ while budgeting for 2014 when compared with the past two years.
Earlier this month, Nasdaq-listed IT services firm Cognizant had also said that their customers have indicated that they would increase spending on technology. Announcing their July-September quarter earnings, Cognizant's CEO Francisco D’Souza had said that discretionary demand is likely to sustain going forward, and customers' budgets “will have a modest upward bias going into next year”.
In a note published last week, brokerage firm Prabhudas Lilladher said that after a gap of nearly two years, clients are seen entering the IT budgeting session on a positive note. The brokerage expects a 'low single-digit' increase in IT budgets for 2014.
“Our interaction with industry experts indicate that Indian IT companies are hurrying up with their hiring processes to meet the resource demand,” the brokerage said in the note. “Our preliminary discussions with IT vendors and clients indicate the beginning of IT budgeting session on a positive note.”
India's second largest IT services firm, Infosys had earlier stated that there is an uptick in discretionary spending in the market. The company's Chief Financial Officer Rajiv Bansal said the trend is likely to continue in 2014.
“At this point of time, the early indication is that budgets are likely to be flat. We expect that some kind of discretionary spend may come back next year,” Bansal told Business Standard.
Even as most industry leaders said it was too early to notice a trend in the rising demand, many said that new technologies such as social, mobility, analytics and cloud are likely to drive demand in the coming year.
Based on these positive indications, brokerage firm Prabhudas Lilladher expects industry body Nasscom to give a growth guidance of over 15% for the sector, next fiscal. For FY14, the industry body had estimated the growth to be in the range of 12-14%.