Nomura is optimistic on HCL, TCS, Tech Mahindra

Global Outsourcing ACV of $5.7bn was up by 14% on year-on-year (y-o-y) basis, according to a Nomura Report. The IT sector also reported a better y-o-y traction of Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC), while USA tractions showed decline. Although the ACV of restructuring deals was down by 15%, its momentum was up by 24% y-o-y.

The IT sector report stated that the Information Technology Outsourcing (ITO) sector was doing well. It said “ITO 1Q ACV of USD4.3bn was up 29% y-y on substantial new scope ACV. The number of ITO contracts awarded also increased significantly, registering 21% y-y growth. Within ITO deals, the highest delta has come from Infrastructure services outsourcing where the value of the contracts was nearly double the average for the past 8 quarters, while ADM, Network services and ADM + Infrastructure remained flat.”

According to the report, the five main IT companies in India, Infosys (IFO), Tata Consultancy Services (TCS), Wipro (WPRO), Cognizant (CTSH) and HCL Technologies (HCLT) were among the top ten global providers in both ITO and Business Process Outsourcing (BPO).

The reports stated that while the ITO was rising, the ACV of the BPO was declining. It said “BPO 1Q ACV of USD1.4bn was down 16% y-y. Even on trailing 12 months, the total ACV of USD5.1 is down ~37% from the previous 12 month period. The outlook for BPO continues to remain weak with human resources outsourcing (HRO) and procurement not performing, while finance & accounts (F&A) remains tepid. Cloud and SaaS are having a bigger impact on BPO demand.”

Reports about the geographical sector stated that America’s ACV, while highest in the group, was down by 16% to $1.9bn. In America, while the financial and retail sector was growing the manufacturing and telecom/media sector registered a decline. “In BFSI”, according to Nomura, “deals have changed from standardised solutions to more bespoke deals with highly tailored customized requirements. Discretionary spend is back and transformational work to drive growth is driving the demand.”

The ACV of EMEA, owing to UK, France and Nordic was up by 29% y-o-y at almost USD2.9bn, while APAC, driven by India, South-East Asia and Australia-New Zealand was up by 89% y-o-y.

Nomura stated that “We view these findings to be positive from a demand perspective for India IT as 1) it indicates a strong start to the year with likely 1H ACV growth of 15%+; 2) suggests some pick-up in Americas (highest ACV in last 4 quarters) and APAC (90% y-y growth), which have underperformed Tier 1 IT growth on an LTM basis and 3) continuation of strong growth trends in Europe.”