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IT Business Process Management Services to Witness Recession

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As fears about inflation and recession rise across the US and Europe, the major markets for IT services providers such as Tata Consultancy Services (TCS), Infosys and Wipro, IT-Business Process Management services are projected to exhibit some recessionary influence on growth in the near- to mid-term.

Everest Group, an IT analytics and advisory organization, forecasts that the IT services market would increase by 6.7 percent in organic constant currency terms in the year ending March 2023, down from 10.4 percent in the year ending March 2022. The fundamental cause of this slowdown is the one-time growth in the 12 months ending March 2022, which profited from the previous fiscal year's poor performance.

As inflation fears grow, the BSE IT index has dropped 17 percent in the last six months, despite the fact that IT companies have produced solid results.

Full-stack providers, such as TCS and Infosys, are more likely to benefit from the present accords, whereas niche providers may encounter difficulties.

“In the event that there is a recession, there could be some slowdown of transformation work which will actually give system integrators some relief from the high demand environment, attrition and wage inflation,” says DD Mishra, senior research analyst, Gartner Research

The growth fundamentals of the industry are, however, stronger than ever, and “we continue seeing the undercurrents supporting long-term demand mega upcycle”, says Peter Bendor-Samuel, chief executive of the Everest Group.

According to the World Bank, global GDP will drop by 2.7 percentage points between 2021 and 2024, more than twice the slowdown seen between 1976 and 1979, when the world last experienced stagflation.

“We may see an increase in the legacy outsourcing of infrastructure as firms delay modernization projects to the cloud but shift their internal teams to focusing on the cloud and moving these infrastructure and support functions to an outsourced model. Hence, firms with large infrastructure practices such as HCL, Wipro and TCS could do well,” Bendor-Samuel adds.

“Apart from segments dependent on oil prices, we see little impact of inflation on the managed services industry. Providers are investing in automation to balance out cost pressures and adjusting cost of living allowance (COLA) in outsourcing contracts,” says Mrinal Rai, principal analyst, ISG.

According to Everest's initial prediction, the IT services industry will grow by six percent yoy in organic constant currency terms from April 2023 to March 2025.

Bendor-Samuel claims that this projection accounts for a minor impact from a future recession, which would be somewhat offset by strong fundamental growth drivers.

“In the event that there is a recession, there could be some slowdown of transformation work which will actually give system integrators some relief from the high demand environment, attrition and wage inflation,” says DD Mishra, senior research analyst, Gartner Research.

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