Even as Tata Consultancy Services (TCS) says its exposure to US banks is “immaterial” at less than three percent of revenue, CEO designate K Krithivasan on April 13 said, some discretionary work may be deferred or cancelled by Credit Suisse as merger with UBS progresses.

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For the January to March 2023 quarter, banking, financial services and insurance (BFSI) segment accounted for about 31.4 percent of TCS revenue. Of the total order book value of $10 billion, the segment had a total contract value (TCV) of $3 billion in Q4.

“Our approach is to stay agile,” TCS management told CNBC-TV18 in an exclusive interaction and added that uncertainty is still lingering and likely to be there for some time. Customers are prioritising some spends over others.

Speaking of specifics, they said manufacturing and auto sectors have seen discretionary projects being put on hold. BFSI is also seeing caution where clients want to spend wisely, outgoing CEO Rajesh Gopinathan said.

"We are not seeing any deal cancellations. Budgets are largely intact and clients want to spend wisely and be cautious for a few weeks,” he added.

Also Read: TCS records all-time high numbers of large deals in fourth quarter

K Krithivasan, who takes over as CEO on June 1, said that some discretionary work may be deferred or cancelled by Credit Suisse as merger with UBS progresses.

“Customers are likely to prioritise certain kinds of projects over others – defer and not cancel. Our thesis is technology spend is quite resilient and customers need that to remain competitive in the marketplace. So, they cannot say that I will not do these kinds of projects; they have to do those projects, they may defer.”

He explained that projects with long return on assets (ROA) timelines are the ones that typically get held. "Would you call cloud a discretionary project or a non-discretionary? We keep signing cloud deals and cloud deals keep going on. So, each bank and each institution’s situation vary. It depends on where they think there is an immediate opportunity,” he said.

Also Read | TCS Q4 Results: Analysts see limited upside due to near-term uncertainties, expensive valuations

TCS management's remarks come a day after India's largest IT services exporter reported a five percent sequential increase in March quarter net profit to Rs 11,392 crore while the firm flagged worries from its key market of North America.

Events like the fall of Silicon Valley Bank (SVB) and fears of a contagion have impacted client sentiments in North America and the banking, financial services and insurance sector in particular, leading to clients deferring spends, the Tata Group company said.

The company reported revenue growth of 0.6 percent in constant currency terms, which was the slowest since the April-June period of financial year 2021, which is the quarter in which the pandemic hit. Gopinathan conceded that the growth in the topline over the December quarter has been "weaker than anticipated" because of the setbacks in North America.

He said the "negative" sentiment has led to a situation where discretionary spends are being put on hold by clients, and added that it is "wait and watch" in the immediate near-term for them. There have been no project cancellations and the structural story of Indian IT is intact, he added.

Brokerage firm JPMorgan cited the earnings miss to unexpected weakness in the US, particularly in BFSI, and continued challenges in Europe. The firm also opined that client caution driving cuts to discretionary spends and project deferrals will impact near-term growth outlook.

Also Read: TCS sees 'disciplined' net addition of 821 employees in Q4, attrition eases to lowest in three quarters

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First Published:Apr 13, 2023 9:34 AM IST