IT firms stare at increasing client issues over coronavirus pandemic

Indian IT services players are staring at increasing client specific issues in the coming quarters, mainly in the airlines, oil & gas, and tourism sectors.

According to experts tracking the sector, clients in these sectors are likely to hold back their IT spends, which could potentially affect 10-12 per cent of IT exports revenues, aggregating around $15 billion.

“All major airlines such as Delta Air Lines, Cathay Pacific; major cruise companies, apart from firms involved in oil & gas segments, are likely to cut their IT spend in coming quarters. However, there are no project cancellations as of now though clients are asking for furloughs owing to halting of operations amidst COVID-19 outbreak,” said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting.

With travel ban imposed by many nations, several airlines have informed their investors regarding the cut in their budgets. While US-based Delta Air Lines has gone public about reducing its expenditure, its peers such as United Airlines, American Airlines, JetBlue, and Southwest Airlines have hinted at the same. Similarly, Hong Kong-based airline player Cathay Pacific has said it will incur losses in the first half 2020 owing to the spread of COVID-19.

With airlines industry being largely impacted, manufacturers like Airbus and Boeing are also expected to spend less on digital technologies. “All major firms, including TCS, Infosys, HCL Technologies, Mindtree, and L&T Technology Services, have exposure to these firms or their supply chains in some way or the other,” said another outsourcing advisor.

Similarly, with cruise companies coming to a halt, many of the global IT firms, including some marquee Indian names, can see adverse impact. Carnival Corp, Royal Caribbean, and Norwegian Cruise Lines have sought a bailout from the US administration, indicating the state of affairs of the industry.

Not only travel and tourism sector, even falling oil prices have added to the worries of Indian IT players. Plunging of crude oil prices is likely to adversely impact the major oil processors’ ability to spend on new-age technologies, though this may not impact the tech maintenance and supports works.

With the automotive sector also taking a severe hit, all major global OEMs are feared to cut their spending in coming quarters. Mid-tier IT firm KPIT Technologies’ red-flag over earning can be seen as early warning on supply side disruption. Indian IT firms can, however, take solace from the fact that they don’t have much exposure to Italy since the country is home to many luxury brands. “Italy’s fashion firms like Versace, Gucci, Armani, Valentino, and Prada don't have much exposure to Indian IT firms,” added Jain.

These high-end fashion firms, which never face any demand slowdown, usually work with global biggies like Accenture and IBM,” added Jain.

Amid all the gloom, however, spend by telecom firms and health care industry is on the rise, as governments spend billions to step up these essential services to contain the spread of this virus.