Indian IT firms to benefit from large US banks in 2020

Indian IT services providing companies like Tata Consultancy Services, and Wipro may get the benefit from global banks such as JP Morgan, Bank of America and Citigroup. As there are set to increase technology spends in the year ahead, analysts said, even as they face a short-term blip in discretionary spending due to the Covid-19 virus outbreak still they will increase there funding on Technology in 2020.

As per the annual report of JP Morgan’s 2019, which was released on April 6, disclosed that they will increase its technology spend by 4% over last year despite the coronavirus pandemic outbreak and 50% of it would be dedicated to ‘new’ capabilities.

As per the annual report commentaries of Bank of America and Citigroup also suggested that they are investments in digital initiatives and will increase efficiency and reduce costs.

As per the discussion and email from Citigroup, they have said that they have outlined its technology spend in its annual report and will continue to invest in digital initiatives as the impact of the coronavirus outbreak is clearly accelerating digital usage further.

As the US bank is willing to increase their spend on digital technologies. It will definitely benefit Indian IT outsourcers, as they rank among their top clients, analysts said.

Mohit Sharma, Sudheer Guntupalli, and Heenal Gada, analysts at Motilal Oswal Financial Services wrote that “Revenue headwinds posed by Covid-19 should further drive the need for such efficiency improvements and cost savings,” in a note last week. They also added, “Firms may also show an increasing propensity to offshore IT services work to low-cost locations like India in pursuit of cost rationalization”.

Early investments in digital capabilities were aiding customers of the global banks in remote banking, they said, as social distancing becomes the new norm.

India’s software exports industry earns over a third of its revenue roughly around $147 billion from servicing global banking, financial services and insurance clients.

Peter Bendor-Samuel, the chief executive of US-based IT advisory and research firm Everest Group said:” Technology investments to drive cost cuts will present new opportunities to Indian IT companies in the coming year”. He also added, “There are some potential integral signs that there may be an increased need for savings coming out of the crisis and this could drive some interesting growth for the Indian firms”.

Angan Guha, global head of BFSI at Wipro said “There is, obviously, an impact in the medium-term. I think there is a big opportunity in terms of vendor consolidation. So, from our perspective, while the future is very uncertain and it’s difficult to predict, we are staying close to our clients, we are working with our clients very, very closely”.He also added that companies also remain cautiously optimistic about other gains, including vendor consolidation in the BFSI sector.

Infosys is expecting banks to shift their applications to the Cloud and the emergence of pure digital banks in this pandemic.

UB Pravin Rao, chief operating officer at Infosys said “After Covid-19 we expect a strong opportunity for Cloud, Data Services and creating new digital bank capabilities”.

Some experts are saying that IT firms can expect higher work volumes in the coming times, they will also be asked to offer more discounts in contracts due to savings in overhead costs due to the new work-from-home model. They also said that Technology spending by the global BFSI sector has increased in the last two years, but Indian IT companies will have to work more on non-traditional, innovative work to capitalise on there effectively in the market.

“Banks have been ramping up their captives in the US and India as technology is becoming core to them. Therefore, it is going in-house. Indian IT companies do traditional work that has to focus more on non-traditional, innovative work. Banks already have a multi-vendor strategy and will fund out for IT companies. So, that they can work more at a lower price,” said Madhu Babu, a senior IT analyst at brokerage firm Centrum.