A Morgan Stanley CIO Survey shows that budget expectations for 2020 reflect a sharp slowdown in IT spending. CIO’s now expect only a 3.4 percent growth in IT spending versus 4.4 percent in 2019.
Speaking about spends in IT sector Manoj Bhat of CFO, Tech Mahindra said, “From an overall contribution perspective, India is a very small part of our business today and we are seeing some repercussions but it is not material in any fashion to our numbers today. From an overall perspective, I do think that globally, I think technology change is going to lead to spending cycles again and and those trends will be repeated in India."
However, specifically in India, there is an issue of the ability to spend and that is something we will have to watch over a period of time, he added.
Telecom is about 42 percent of Tech Mahindra's overall revenues. Giving his overall outlook on sector Bhat said, “Globally, there are two-three massive trends which we are seeing. First trend is that across countries we are seeing a whole shift moving to digital technologies becoming closer to the customer and becoming more agile in responding to the needs to consumers. That is a big trend and we are seeing a lot of spend in that area. Secondly, globally the sector has not invested in technology especially on the IT side for a long time, maybe about 8-9 years. So, we are seeing some recovery in terms of discretionary spends.”
“At the same time, given the situation in the industry I think most of our customers are looking to optimise from their current spend and find investment dollars for their new initiative be it digital or be it on the network side," he said, adding that on the network side, 5G plans are ready for most telcos.
"Historically, every time there has been a network technology change, it has spurred spending across the sector. While, in 3G, 4G wave that was a shorter period, but in 5G it is going to be more gradual because many of the geographies at various points in the evolution towards 5G," said Bhat.
With regards to earnings going forward for the telecom segment, he said, “Given the seasonality in some of our businesses, Q3 and Q4 have been a stronger quarter. Second half of the year from a telecom perspective will be better than the first half.”
On the margin front, Bhat said, “While clearly we have gone through a period where our margins increased and then they dropped a bit because of some other transition related and other expenses, but directionally we want to increase margins going into next year and that is something we should be able going into next year.”