Indian IT to mirror Infosys trend of digital growth, core services fall

IT clients have been shifting spends from existing technologies — used to currently run their businesses — to newer ones in order to deal with disruption from startups and demands from customers.

BCCL
Clients have also consolidated core IT spends with some larger players, helping Indian IT companies weather the contraction. (Representative Image)
BENGALURU: As the impact of a shift to digital technologies gets more pronounced, Infosys’ core revenue, or revenue from bread-and butter IT services such as multi-year support contracts, fell 5% in the third quarter, with analysts saying the trend is likely to accelerate as more companies face shrinking revenue from what is still a major part of their business.

IT clients have been shifting spends from existing technologies — used to currently run their businesses — to newer ones in order to deal with disruption from startups and demands from customers.

Clients have also consolidated core IT spends with some larger players, helping Indian IT companies weather the contraction. However, that is now coming to an end, experts said. “The portfolio consolidation is coming to an end, leaving the compression to drive negative growth. We expect this to continue and to accelerate, hence we would expect the 5% compression to expand over time and may even hit as much as 15% in a few years,” said Peter Bendor-Samuel, CEO of IT advisory firm Everest Research. Bendor-Samuel, however, said he expected growth in digital areas to ‘more than compensate’ for the compression in core revenue.


In Q3, Infosys core revenue stood at $1.9 billion, compared to a marginal expansion in the same period last year. The IT service provider’s digital revenue, which now contributes over 40% to total revenue, grew about 41% to $1.3 billion. Overall, revenue in the quarter grew 9.5% in constant currency terms.

Although the industry is seeing a gradual decline in core revenue, complex design and build work to transform core IT systems is growing at a healthy 6%, said Phil Fersht, CEO, HfS Research. “This explains some of the inconsistency of some service provider results, especially in Q4, when many commodity contracts are renegotiated. But, all-in-all, Infosys is well-positioned for future growth and the recent quarter is a blip as the industry transitions to shorter contracts and more complex customised work,” he said.

This was especially the case with banks, Fersht said, as they had no choice but to make a full shift to digital. Infosys CEO Salil Parekh said the shift to digital had been accelerating and that the company had made investments to manage the change. “I don’t have numbers on this, but I would think we are managing this shift better than some of the other companies,” Parekh said.
ADVERTISEMENT

Infosys also flagged a slowdown in banking and retail on persistent issues in those sectors. The election year in the US will also impact how clients spend, a concern for next financial year’s revenue, according to analysts.
Download
The Economic Times Business News App
for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App
for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
READ MORE
ADVERTISEMENT

READ MORE:

LOGIN & CLAIM

50 TIMESPOINTS

Related Companies

More from our Partners

Loading next story
Text Size:AAA
Success
This article has been saved

*

+