2024 to be a mixed year for Indian technology industry

Indian technology industry started the year on a subdued note. The performances of top-tier IT firms like Tata Consultancy Services, Infosys, Wipro, HCL Tech and other mid-tier firms indicate that the pain is not yet over. Technology spend is yet to come back decisively and clients are deferring their annual budgets for 2024 by a month or two. It seems like everyone is waiting for signs of recovery in the US economy, which has been reeling under high interest rates owing to high inflation. That is the reason that technology spend in the US by enterprises has reduced drastically due to which all IT firms registered negative growth in their revenue share from the US, which contributes more than 30 per cent to all big IT firms’ top line. Unless the US economy recovers, 2024 may not be very different from 2023. Meanwhile, Europe has been a beacon of hope for the Indian technology industry. In 2023, most large deals were bagged from Europe with many companies witnessing good growth in the UK and other key European economies. The growth prospects in US and Europe will largely determine the performance of Indian IT firms this year.

Experts are of the view that second half of this year may see some discretionary spend coming back to the global market. This optimism stems from the fact that the US Federal Reserve has announced its decision to reduce interest rates by three times in 2024. If that happens, the interest rate in the US economy is likely to come down towards the second half of the year. This will ensure more money in the hands of enterprises, leading to more investment in the technology industry. In the third quarter ended December, most IT firms saw spend in hi-tech, BFSI and telecom getting slashed. Hi-tech usually is the vertical where enterprises invest in the new technology domains. Unless discretionary spend comes back, there is a less possibility of its recovery in the coming quarters. However, BFSI (banking, financial services & insurance) could be a major gainer from interest rate cuts. So, there is a hope that this vertical is likely to perform better this year. As far as telecom vertical is concerned, after huge investments in 5G space, they are looking at returns from such investments.

Most experts see this happening slowly in the coming quarters. So, 2024 will see a recovery, albeit slowly. As large deal flow remains more or less intact, deal ramp ups are certainly likely to improve as clients have better visibility of returns. Despite the absence of mega deals, the deal pipeline provides good cushion to Indian IT firms for a better growth. All-in-all, this year will see some recovery towards the end, while 2025 could be a good growth year. As a result, the hiring trend is unlikely to change a lot in 2024. Rather, most companies will try to leverage their existing employee strength, aiming for higher employee utilisation. The buzzword for IT professionals is to ‘stay put’.