India’s largest IT services company Tata Consultancy Services (TCS) recently reported weaker-than-expected quarterly revenue. TCS‘ chief operating officer N Ganapathy Subramaniam told news agency PTI that the sluggish revenue growth can be attributed to the adverse impact on discretionary demand because of economic headwinds. He said that discretionary demand can contribute as much as 30% of incremental revenues in a quarter, and that the September quarter results were impacted due to this aspect.
Clients are choosing to conserve cash given the economic climate and choosing to defer spends where they do not see immediate returns on investments, which has impacted the discretionary demand, he said.The overall revenue was supported by contribution from new deals and the discretionary spends by clients, while cost optimization and end of contracts prove to be a drag, he explained.
Discretionary demand is typically a short-term consulting engagement which is fulfilled by allocating a few resources, outsourcing work to subcontractors or by lateral hiring, Subramaniam said, adding that it contributes an ‘extra’ to provide a fillip to the overall revenue pie.
Deal pipeline intact
He, however, said that the proportion of revenue that the company bags from new deals has not been affected. The company maintains that the proportion of new deal wins into revenues is “intact”.

The company has reported signings of over $10 billion for three consecutive quarters. “TCV (total contract value) to revenue conversion rate is intact,” Subramaniam said, explaining that there are a slew of other factors which influence the revenue growth in a quarter.

Election season hurts forecast
When asked about the outlook on the discretionary demand, he said it is very difficult to have any prediction at present but added that it all depends on how the global economy shapes up. “(even) economists are not able to say when this economy will bounce back. It is election year in the US, and election year in India. The UK will also probably go for an election. With all this, there is more that can change,” he added.