Cognizant sees demand improvement in financial services space

Information technology services company Cognizant, which competes with large Indian entities such as Tata Consultancy Services and Infosys for outsourcing opportunities, says it sees some improvement in demand from the financial services space.

In the March quarter, sluggish growth in revenues from the health care and financial services (BFSI) businesses weighed on the performance. It made the Nasdaq-listed company issue a relatively conservative revenue growth forecast of 10-13 per cent for the full year.

In an investor conference on Thursday, chief financial officer (CFO) Karen McLoughlin said they were seeing some stabilisation in banking. “We don’t expect banking to grow faster than the company growth average this year but it is returning to growth and we will have sequential growth from Q1 to Q2,” she said at Nasdaq’s 34th Investor Program.

Financial services is by far the largest business vertical for Cognizant, as it is for most other large IT services companies. In the quarter ended March, the segment (40 per cent of Cognizant’s overall revenue), saw an overall decline of 1.7 per cent sequentially, though the company had a higher sequential decline of four per cent.

With Cognizant expecting improvement in the BFSI segment, this is also expected to be good news for others in IT. In the March quarter, most struggled in the segment, especially in insurance. In an investor meeting last week, Infosys’ chief operating officer,

U B Pravin Rao, said the company was seeing some short-term challenges in insurance.

According to McLoughlin, though there has not been much improvement in demand from the health care segment, this should return once the mergers and acquisitions (M&As) underway in this space stabilise, creating demand for integration opportunities. “The other area we are seeing a little bit of disruption this year is in health care,” she said.

“There are some very large mergers underway… Typically, when we see a merger environment, clients will pull back on discretionary spending while they are in the process of signing and closing the transaction. And, after the deal is closed, there tend to be a significant investment into integration spending.”

On inorganic growth, the CFO said they’d continue to look for prospective targets, though there are immense opportunities for organic growth. “We are always actively looking for opportunities and would like to do more M&As,” she said, adding the focus would be either on geographic or service lines' expansion or even digital and intellectual property-based acquisitions.