Contrary to the optimism that many IT service industry czars expressed early last year, deal pricing could remain under pressure for most of FY24
Contrary to the initial response to macroeconomic headwinds and its impact on deal sizes and pricings, market analysts now say that most Indian IT companies could witness significant pressure on their pricing through the fiscal year. And the major cause for this could be the slowing down of technology spending in most of North America and Europe.
When the first signs of a slowdown came some months ago, most industry bigwigs had claimed that smaller deals would be the way to go as companies could not consider drastically reducing tech spends. However, most of the big companies overseas seem to be focusing on large deals to squeeze out cost efficiencies and vendor consolidation.
Consumers expecting more concessions
This has resulted in a further increase in pricing pressures as customers are now expecting more concessions while offering such large mandates, according to a report published in the ET quoting market analysts. The report quoted Peter Bendor-Samuel, chief executive of Everest Group as saying that pricing power has shifted from providers to buyers.
There is significant pressure to lower pricing as vendor consolidation alongside large deals are now dominating the market and this trend could well continue through the current fiscal year. It would become quite hard to get price hikes during the current economic climate across most segments of IT delivery, barring some specialized ones.
Situation not conducive for higher prices for deals
In recent times, several IT industry leaders have shifted their points of view to state that the growing concerns over recession and the credit crunch in the US was not a conducive environment where Indian companies could expect price increases for their deals.
HCL Tech CEO C Vijaykumar told an earnings call recently that there have been some instances where customers sought reduction in prices or more than a reduction while expecting the company to deliver the same outcomes at a lower cost. Of course, this could provide the required flexibility to the company on how they can deliver the services, he added.
While price increases appeared to be feasible during FY23, the current fiscal year seems one where they are destined to be stable, which is also good news considering the bloodbath happening across the globe due to the credit squeeze. Market analysts expect deal pricing to remain flat in a competitive environment where companies take longer to close deals.
TCS outgoing CEO Rajesh Gopinathan also echoed similar sentiments during the earnings call, stating that the company would have to wait and watch how the pricing environment moves over the next few months. However, he did mention that the company did not witness any major undercutting or price discounting thus far.
Meanwhile, data from ISG says pricing improvements on deals could be seen across what can be called digital type of deals though in the case of infrastructure and management services, the pricing appears to be moving south. It’s chief data analytics officer Kathy Rudy says that during January-March, it was brought out that salary costs were taking the largest chunk of earnings and was the major contributor to high margin pressure on companies.