Global banks have begun revitalizing the technology projects they have put in place in 2023, raising hopes for India’s $254 billion IT sector, which draws about one-third of its revenue from clients in the banking, financial services and insurance sectors. (BFSI).
Quarterly reports from Tata Consultancy Services (TCS), Infosys, Wipro and others showed a nascent recovery in demand from BFSI clients after six quarters of depressed spending since the collapse of Silicon Valley Bank.
“BFSIs are expected to come back faster because they were the first to be cautious,” said Samir Seksaria, chief financial officer of TCS, who hopes that interest rate cuts by central banks and the uncertainty will end their US elections are about customer confidence.
The recovery in demand for technology services from major banks such as JPMorgan Chase and Bank of America, discussed in their recent earnings calls, could have an effect.
JPMorgan said it was increasing its annual technology spending by $1.5 billion to $17 billion in 2024, while Bank of America earmarked $4 billion this year for new technology initiatives such as the development of artificial intelligence generation functions.
“The recovery of the banking sector is encouraging for the technology services industry, as in the past other industry sectors have generally followed suit,” said Peter Bendor-Samuel, CEO of technology research firm Everest Group.
The five largest US banks spent 6.8% more on technology investments year-on-year and 1.2% sequentially, according to their results for the quarter ended in June, according to a Reuters analysis.
The renewed technology investments aim to strengthen regulatory compliance, customer experience and cybersecurity, while revamping infrastructure through cloud migration, according to their earnings call.
Many analysts expect the US central bank to cut interest rates by 50 basis points in September, a move that will make borrowing cheaper and could ease cost pressures that have forced many customers from the project IT sector postpone electives.
“Lower interest rates in the United States typically boost economic activity, leading to increased technology investments and transformation budgets,” said Hansa Iyengar, principal analyst at technology consulting firm Omdia.
The rate cut is also expected to result in a more favorable rupee exchange rate for Indian IT companies that typically bill most of their clients in US dollars.
BOOST OF L’IA
The desire to invest in technology is also part of a shift in customers’ strategic thinking, according to industry executives.
“I think the costs today are outdated. They are looking to the future,” said Nitin Rakesh, CEO of Mphasis, noting that BFSI’s customers who played with generational AI wanted to use it to improve the customer experience and improve operational efficiency.
The BFSI sector is ripe for the use of AI as it processes a lot of data, is highly regulated and prioritizes innovation, according to industry experts.
Most companies convert 19% of their proof of concepts, or evidence that shows the feasibility of an idea, into projects, but BFSI companies convert 31%, said Ray Wang, CEO of Constellation Research.
“Most successful companies will double down on their AI project and invest in another project,” Wang said.
But not everyone is convinced that the spending recovery will last.
“While this (improvement in BFSIs) is certainly a spectrum of hope, it is too early to declare a full recovery,” brokerage Motilal Oswal Financial Services said in a note last week, stressing how any revival could in case the recession hurts again. the mindset of the customer.