IT sector braces for impact of 'missing' small deals: Report

The Indian IT sector seems to be bracing for an impact of "missing" small deals in the ongoing financial year as major companies shift focus to larger deals.

Accenture CEO Julie Sweet recently pointed out that their clients were "kind of holding back on the small stuff and doing the bigger stuff", according to a report by The Economic Times.
"So we’ve got to absolutely try to maximise the small deals," Sweet said, adding that the company needed to see if the number of small deals picked up in the current quarter to be able to make any predictions about the year ahead.

While large deals have the ability to move the needle quickly and catapult an IT company’s growth to the next level, small deals have to be constantly replaced by the sales team as they near completion, resulting in quick revenue generation.

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"Smaller projects tend to be digital and higher priced because of the need for better talent. If you are already a strategic provider, they are also given out quickly and there is less of an RFP [request for proposal] and negotiation process. So, they convert to revenue quickly," a client account manager with one of the top three IT services companies in India told the publication on condition of anonymity.

Such projects helped the IT sector wade through the pandemic and outperform expectations in the last few years.

According to the report, IT companies had flagged continued client caution and macroeconomic uncertainties in the fourth quarter of FY23 and few were optimistic about FY24 Q1.

In its June report, JPMorgan, based on meetings with 15 IT-services players, concluded that demand for IT services had further weakened in June. "Deferred project starts, project halts, and cancellations appear likely to persist. We believe increased competition for a smaller pie could trigger falling win rates, pricing, and deteriorating deal terms," said analyst Ankur Rudra in the report.

Rudra further noted that the industry isn’t likely to recover for the next six-to-nine months.

Experts believe that the spate of large consolidation deals by Infosys, TCS and Cognizant could be the sole bright spot for Q1 FY24.