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FY25 Tech Industry Predictions - In conversation with Kumar Rakesh, Associate director, BNP Paribas
FY25 Tech Industry Predictions - In conversation with Kumar Rakesh, Associate director, BNP Paribas

July 11, 2024

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In the latest edition of "Analyst Assemble" by Nasscom Insights, we interacted with Kumar Rakesh on the outset of the Q1FY25 results. Key highlights from the discussion are listed below.

Anticipating a positive demand outlook

  1. Reductions in Federal Reserve rates expected to stimulate growth
    • The reduction in federal rates, expected by September/December of 2024, is likely to positively impact enterprise sentiment.
    • Discretionary demand is expected to rise with these rate cuts, providing a boost to the industry.
    • Companies are anticipated to shift from a cautious stance to expansion, fuelling further growth in discretionary spending.

 

  1. Manufacturing and BFSI are set to be the primary drivers of growth
    • Manufacturing sector to lead the charge with robust growth due to modernization efforts and increasing demand.
    • BFSI sector, recovering from recent downturns, expected to contribute significantly to industry growth in the latter half of the fiscal year.

 

  1. Increase in Tech Deals Momentum
  • Tech industry has seen a recent uptick in deal signings after a sluggish start to 2024. Q4FY24 witnessed a q-o-q increase of 35% for select set of tech companies.
  • Increase in shorter tenure deals (typically 4-5 years), to accommodate rapid technological advancements.

 

  1. ER&D continues to be the key growth driver for the industry
  • The demand for SDVs is broadening the addressable market for tech companies. As more vehicles are developed using SDV technology, areas traditionally reserved for ancillary and component makers are now becoming accessible to tech and ER&D service providers, and this trend is expected to continue.
  • Most mid-sized companies possess strong domain expertise in ER&D services. These companies have benefited in this domain and are well-positioned for the future.

 

  1. Generative AI expected to shift from potential to profit
  • Investments in Gen AI are currently reallocated from existing tech budgets, with significant incremental budget allocations expected next year. These investments are anticipated to deliver RoI in the latter half of FY25.
  • Reminiscent of early cloud adoption phase, Gen AI investments by companies also witnessed numerous partnerships and collaboration being established in the last few quarters.
  • Tech companies are developing capabilities in Gen AI, focusing on both software and hardware aspects.

 

Improving Operational Metrics

Hiring

Utilisation and Attrition

Margins

  • Increase in job listings by select companies signal a potential recovery in demand.
  • Net headcount additions are expected to begin in the next two quarters.
  • Companies are reporting better utilization rates and reduced overall attrition.
  • Despite slower growth, companies have restructured their cost models to maintain margins.

 

 

Optimistic Growth Outlook

  • Growth recovery is expected to reflect in the Q1FY25 numbers, with companies that secured large deals late last year anticipated to benefit.
  • Most tech companies are expected to reach high single-digit growth closer to Q4FY25.
  • FY26 projected to be the year of recovery with resurgence in discretionary demand expected by the second half of FY25.
  • Demand expected to be driven by cloud transformation and Gen AI across sectors.
  • The potential macroeconomic risks, such as reaccelerating inflation, can impact the demand environment.

 

With Q1FY25 results expected soon, we will be analysing the quarter results and sharing the detailed insights here. Stay tuned for more updates.

For more information and insights, watch this full podcast here: https://tinyurl.com/2xxkfm9t

Read our Industry Quarterly report Q4FY24 here: https://tinyurl.com/mwjyx8u4

 

#AnalystAssemble #Techtrends #GenAI #Techdeals #Q1FY25Results


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Prajwal Pandey
Research Analyst

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