Even though Indian IT services firms witnessed strong growth in their US business in the June quarter, Europe was a major worry for most of the companies owing to lingering uncertainties over Brexit and cross currency headwinds. The implementation of new GDPR (general data protection regulation) guidelines had also affected their revenue growth in the region during this period.
For instance, country’s second-largest IT services player Infosys saw its revenue from Europe declining 0.9 per cent in Q1 of FY19 while for Wipro it fell 6.6 per cent on sequential terms. Noida-based HCL Technologies also witnessed a similar trend with 1 per cent drop in European business on quarter-on-quarter basis. Among the mid-tier IT firms L&T Infotech reported 0.7 per cent drop sequentially in its revenue growth during the first quarter of the current financial year.
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“Companies in the European region are little cautious on outsourcing because of Brexit-related concerns. Especially, firms working in the financial services space are going through transition, which has affected the deal flow for IT firms in the short-term," said Pareekh Jain, senior vice-president and head of India operations at HfS Research.
Recently, European Central Bank has said around 50 London-based banks have approached Eurozone banking regulators about relocating business units to this region.
Last week, HSBC announced that seven of its Europe-focused offices would move from London to Paris early next year.
Similarly, reports have suggested that Barclays has begun shifting direct ownership of its French, German, and Spanish branches from a British-based entity to its Irish bank. Jain of HfS Research, however, said the current slowdown was a temporary phenomenon, which would be subsided in the next 3-4 quarters.
Apart from Brexit, slow GDP growth in European region is also cited as one of the reasons for lesser discretionary spends by clients. “The immediate factors are the slowdown in economic growth in Europe and exacerbating factors such as Brexit. With regard to Brexit, it is a more nuanced issue with some firms spending more and others pulling back. However, its effect cannot be counted out,” said PeterBendor-Samuel, founder & CEO of global research firm, Everest Group.
However, the technology consultancy firm said that it had not seen signs of deceleration in demand in this region. "One of the challenges in looking at reported data in financial statements is the significant changes in currency impacts," the firm said.
Cross currency headwind had also been flagged up by many mid-tier IT firms after the announcement of their first quarter results.
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"Our Europe business grew 7.3 per cent constant currency but 1.7 per cent on a reported currency basis. So, in this quarter there is a little bit of an impact because of currency,” Rostow Ravannan, CEO of Mindtree, had said during the company's post earnings analyst call last month.
IT sector
On the newly rolled out GDPR guidelines, analysts said that its impact was mostly mixed. “With regard to GDPR, we see this as a mixed issue with the Indian firms requiring to invest in their own privacy issues. However, over all, we see it as a net plus for the Indian firms as substantial investments in compliance by the customers will be spent with the Indian firms,” PeterBendor-Samuel of Everest Group said.
The social media platform, which is pushing its video services and aims to be a challenger in the OTT space, has the rights to stream the Spanish football league for free for the next three years
For instance, country’s second-largest IT services player Infosys saw its revenue from Europe declining 0.9 per cent in Q1 of FY19 while for Wipro it fell 6.6 per cent on sequential terms. Noida-based HCL Technologies also witnessed a similar trend with 1 per cent drop in European business on quarter-on-quarter basis. Among the mid-tier IT firms L&T Infotech reported 0.7 per cent drop sequentially in its revenue growth during the first quarter of the current financial year.
ALSO READ: IT firms likely to incentivise top executives based on digital revenue
“Companies in the European region are little cautious on outsourcing because of Brexit-related concerns. Especially, firms working in the financial services space are going through transition, which has affected the deal flow for IT firms in the short-term," said Pareekh Jain, senior vice-president and head of India operations at HfS Research.
Recently, European Central Bank has said around 50 London-based banks have approached Eurozone banking regulators about relocating business units to this region.
Last week, HSBC announced that seven of its Europe-focused offices would move from London to Paris early next year.
Similarly, reports have suggested that Barclays has begun shifting direct ownership of its French, German, and Spanish branches from a British-based entity to its Irish bank. Jain of HfS Research, however, said the current slowdown was a temporary phenomenon, which would be subsided in the next 3-4 quarters.
Apart from Brexit, slow GDP growth in European region is also cited as one of the reasons for lesser discretionary spends by clients. “The immediate factors are the slowdown in economic growth in Europe and exacerbating factors such as Brexit. With regard to Brexit, it is a more nuanced issue with some firms spending more and others pulling back. However, its effect cannot be counted out,” said PeterBendor-Samuel, founder & CEO of global research firm, Everest Group.
However, the technology consultancy firm said that it had not seen signs of deceleration in demand in this region. "One of the challenges in looking at reported data in financial statements is the significant changes in currency impacts," the firm said.
Cross currency headwind had also been flagged up by many mid-tier IT firms after the announcement of their first quarter results.
ALSO READ: From Infosys to Wipro, IT firms eye acquisitions to add to adtech skills
"Our Europe business grew 7.3 per cent constant currency but 1.7 per cent on a reported currency basis. So, in this quarter there is a little bit of an impact because of currency,” Rostow Ravannan, CEO of Mindtree, had said during the company's post earnings analyst call last month.
IT sector
On the newly rolled out GDPR guidelines, analysts said that its impact was mostly mixed. “With regard to GDPR, we see this as a mixed issue with the Indian firms requiring to invest in their own privacy issues. However, over all, we see it as a net plus for the Indian firms as substantial investments in compliance by the customers will be spent with the Indian firms,” PeterBendor-Samuel of Everest Group said.
The social media platform, which is pushing its video services and aims to be a challenger in the OTT space, has the rights to stream the Spanish football league for free for the next three years
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