Higher digital spends likely to boost IT budgets in 2019, say experts

Clients of big information technology (IT) services companies are likely to increase their budgets this year, after not doing so for the past few years, claims experts and analysts tracking the sector. Discretionary expenditure in new technologies, needed to stay relevant, is going to be the source of the budgetary expansion.

According to experts and analysts, most outsourcing deals in 2019 will be led by new technologies, which will be bundled with traditional services. This will lead to a bigger size of outsourcing contracts.

A recent report by Gartner claims global IT spend would cross $1 trillion (Rs 70.5 trillion according to exchange rates on Wednesday) in 2019 — a growth of 4.7 per cent. This is good news for the export-driven IT-services industry in India, which is now better placed to corner a larger share of this augmented budget after increased investments in expanding their digital as well as consulting capabilities.

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“At this time, we are seeing a continuation of last year’s robust spending on IT-related investment in the first two quarters of this year. Most of the demand will come from verticals such as energy and engineering apart from insurance, consumer-packaged goods, and retail,” said Peter Bendor-Samuel, founder and chief executive officer of global research firm Everest Group.

After remaining flat, IT spending had picked up momentum in the second half of 2018.

Bendor-Samuel, however, said though the banking, financial services and insurance sector would continue to spend IT-services players might not benefit, thanks to “insourcing” — clients using technology in-house at their offshore centres.

Despite the projection of a slower pace of growth, analysts said the slowdown would be mostly in legacy side of business. Those companies with higher digital capabilities would bag more number of contracts. “The big change in 2019, compared to 2018, is that adoption of cloud technology and everything as a service,” said Sanjoy Sen, doctoral research scholar at Aston Business School, UK. He said despite every solution being used as a service, IT spends are set to grow.

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Industry players also said digital services will go main-stream this year. “We are seeing digital becoming larger and more enterprise-wide this year. We also anticipate larger transformational deals. In every way, newer technologies are becoming more main-stream now,” said Mindtree Chief Executive Officer Rostow Ravanan.

The Bengaluru-based company is currently gathering data points from clients regarding their IT budget, which it will collate by the third week of this month for its future planning.

In 2018, IT services industry had seen good momentum in large-deal space, which was not the case in earlier years.

Industry leader Tata Consultancy Services had bagged deals worth more $5 billion; Infosys had bagged large contracts worth nearly $1 billion. Similarly, Wipro had won a $1.6-billion worth contract from Alight Solutions in September last year — the largest ever for the company.

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“What is changing now is that a lot of large IT outsourcing deals are coming to the market. As digital moves from consulting to implementation, the deal sizes are going to be larger,” said Pareekh Jain, an outsourcing advisor and founder of Pareekh Consulting.

He, however, said big service providers are going to benefit more from these changing dynamics, as they can combine different offerings such as automation, digital services, and platforms for bagging multi-year deals.