Global banks' tech revival sparks hope for $254 bln Indian IT sector
By Sai Ishwarbharath B and Haripriya Suresh
BENGALURU, Aug 14 (Reuters) -Global banks have started reviving the technology projects they put on ice in 2023, raising hopes for the $254 billion Indian IT sector that makes about a third of its revenue from banking, financial services and insurance (BFSI) clients.
Quarterly reports from Tata Consultancy Services (TCS) TCS.NS, Infosys INFY.NS, Wipro WIPR.NS and others showed a nascent recovery in BFSI client demand after six quarters of depressed spending since the Silicon Valley Bank collapse.
"BFSI should come out faster as they are the ones that went into the caution mode first," said TCS Chief Financial Officer Samir Seksaria, who hopes interest rate cuts by central banks and the end of U.S. election-related uncertainty will boost client confidence.
The revival in demand for tech services from big banks such as JPMorgan Chase JPM.N and Bank of America BAC.N as mentioned during their recent earnings calls could also have a ripple effect.
JPMorgan said it was boosting its annual technology spending by $1.5 billion to $17 billion in 2024, while Bank of America has earmarked $4 billion this year for new technology initiatives such as developing generative artificial intelligence features.
"The recovery of banking is encouraging for the tech services industry as in the past other industry sectors usually follow suit," said Peter Bendor-Samuel, the CEO of tech research firm Everest Group.
The top five U.S. banks spent 6.8% more on tech investments year-on-year and 1.2% sequentially, their results for the quarter ended June showed, according to Reuters' analysis.
The renewed tech investments are aimed at boosting regulatory compliance, customer experience and cybersecurity, while also revamping infrastructure through cloud migration, according to their earning calls.
Many analysts expect the U.S. central bank to cut interest rates by 50 basis points in September, a move that will make borrowing cheaper and could ease cost pressures that forced many IT clients to defer discretionary projects.
"Lower interest rates in the U.S. generally stimulate economic activity, leading to increased technology investments and larger transformation budgets," said Hansa Iyengar, principal analyst at tech consulting firm Omdia.
A rate cut is also likely to result in a more favourable rupee exchange rate for Indian IT firms that typically bill most of their clients in U.S. dollars.
AI BOOST
The willingness to invest more in technology also comes amid a shift in strategic thinking among clients, industry executives said.
"I think it's beyond cost right now. They're looking forward," Mphasis MBFL.NS CEO Nitin Rakesh said, underscoring how BFSI clients who had toyed with generative AI wanted to use it to improve customer experience and operational efficiency.
The BFSI sector is ripe for AI use because it deals with a lot of data, is heavily regulated and prioritises innovation, according to industry experts.
Most firms convert 19% of their proof of concepts, or evidence showing the feasibility of an idea, into projects but BFSI companies convert 31%, Constellation Research CEO Ray Wang said.
"Most companies with a successful AI project will double down and invest in another one," Wang said.
But not everyone is convinced the spending revival will last.
"While this (BFSI improvement) is certainly a glimmer of hope, it is too early to declare a full recovery," brokerage Motilal Oswal Financial Services said in a note last week, underscoring how any resurgence in recession fears could hurt client sentiment again.
IT companies' BFSI revenues https://reut.rs/3WGWVXV
IndiaIT_BFSIrecovery https://reut.rs/3X3HXNk
Reporting by Sai Ishwarbharath B and Haripriya Suresh; Editing by Dhanya Skariachan and Jamie Freed
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
