Indian IT Firms Depends US Market: BofA Securities sees a 40 Per Cent Chance of a US Recession Next Year!!Analysts predict that TCS, Infosys, and HCL will be negatively impacted by the US recession as it will have an impact on global technology spending. Do you want to know in details then read the full article given below.
According to Grant Thornton Bharat Partner and Leader (Financial Services Risk) VivekIyer:
A slowdown in the US would simply need some capital and operational investments to be rationalized and re-prioritized. Margin protection will be the sector’s main area of concern throughout the time period, given the limited growth due to the US slowdown, which will transfer into less growth for the tech industry.
“We do not rule out a chance that Indian IT companies may bear the brunt of the slowdown in the client-centric regions,” added Pokharna of Kotak. Additionally, businesses that are more dependent on discretionary expenditure run the danger of cutting their IT budgets. In terms of margins, the majority of IT companies experienced margin pressure in Q1FY23.
As businesses ramp up fresher hiring to meet demand, there are headwinds in the shape of salary revision, increased travel expenses, visa charges, and declines in utilization.
In fact, they stated in Q1FY23 that the deal pipeline is strong right now and in some situations, it is at an all-time high. The optimism of Indian IT companies will be put to the test, particularly during the slowdown period in the second half of the fiscal year.
A lot depends on the monetary policy of the global central bank and the trajectory of inflation in wealthy nations. Demand may slow down as a result of the US Fed’s aggressive quantitative tightening to control inflation. A difficult economic situation also affects clients’ IT spending in Europe, in addition to the US.
HCL Technologies, a key player in the IT industry, saw a net profit increase of 2.4% year over year to Rs.3,283 crore in the June 2022 quarter. Wipro announced its June quarter profit on Wednesday at Rs.2,563 crore, a decline of 20.9% from the prior year. The quarterly revenue for Wipro increased 17.9% YoY to Rs.21,528.6 crore. Its operating margin for the IT services division fell by 200 bps quarter over quarter to 15%.
According to SumitPokharna, vice president of fundamental research at Kotak Securities,
“Despite an uncertain macro environment, the management of the majority of Indian IT companies is bullish about the demand for global IT services.
Analysts believe that the US and Europe’s IT spending will be negatively impacted by the potential recession, which will then hurt Indian information technology (IT) companies like TCS, HCL Tech, and Infosys. Brokerage houses predict that the US economy will experience a recession within the next year. About 40% of the sales for Indian IT companies come from the US market.
According to a survey by the US-based brokerage firm Goldman Sachs,
There is a 30% possibility that the US would experience a recession in the coming year, with a 25% conditional probability that it will avoid one in the following year.
In addition, Bank of America Securities projects a 40% risk of a US recession in 2019, despite continuously high inflation.
According to Visionet Systems India’s MD and global head (BFSI business), AlokBansal:
“In March of this year, India had its highest inflation rates since October 2020 with a 6.95% increase. Additionally, we cannot rule out the chance that we could see minor effects of the US recession.
We already know how the global financial crisis in 2008 affected the BFSI and IT sectors, so we need to be alert because if the economy weakens even more, there will be a decline in technical spending.
Tata Consultancy Services (TCS), the largest provider of IT services in India, posted a consolidated net profit of Rs.9,478 crore for the June 2022 quarter, an increase of 5.2% on an annual basis. When compared to the same period last year, the company’s revenue for April through June 2022 increased by 16.2% to Rs.52,758 crore from Rs.45,411 crore. He continued by saying that the US market contributes about 40% of the revenues made by Indian IT companies. Additionally, the UK, Germany, and France contribute significantly to the revenue. “Our rate of IT spending will continue to decline in the case of a recession.
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