Delay in demand uptick for India IT firms likely

As far as sentiment is concerned, if it turns negative, then there will be adverse impact. Interest rate cycle, upcoming US presidential elections, along with fears of recession only add to the uncertainty. So, it has to be seen whether the current stock market meltdown is more sentiment-driven or fundamental in nature - Pareekh Jain, Founder, Pareekh Consulting

Ripple Effect

♦ Recessionary fears in US not new and in news for last two years

♦ Recession may lead to interest rate cut, supporting BFSI vertical

♦ Negative sentiment may make enterprises cautious on tech spend

Bengaluru: Recessionary fears in the US may be leading to hammering of technology stocks in the Nasdaq, but Indian IT services companies are not likely to be that adversely affected in case of the US slowdown. However, uncertainty in this key geography will delay demand recovery.

Experts in the know said that despite the US not performing as a geography for the last one and half years, Indian IT services firms have grown, albeit slowly. So, any fears of recession in the US economy means the status quo continues in the current demand environment without any drastic change. Moreover, they pointed out that recessionary fears may lead to interest rate cuts in the US, which is likely to supplement demand in BFSI and telecom verticals.

“Technology companies in the US have been priced at a premium. So, as the sentiment changes, stocks of those companies have gone down. But from Indian IT industry perspective, if interest rate cuts happen owing to recession, investment by BFSI and telecom firms will increase. Though negative sentiment affects demand environment, but there will be some positives that will emerge from such environment,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting told Bizz Buzz.

In the last one month, the tech-heavy Nasdaq Composite Index has fallen by around 12 per cent with tech giants like Nvidia, Amazon, Apple, Intel and others correcting significantly. These meltdowns were primarily driven by recessionary fears in the US economy, stretched valuation of frontline technology firms and AI-driven earning upgrade.

However, the April-June earnings of most tech firms indicated that AI and GenAI-led earnings were yet to significantly contribute to revenue. Such disappointment has led to dumping of those stocks in the equity market.

In case of Indian IT firms, though commentary on AI has been going on for last one year, investors have not taken much exposure in these companies. IT index has been one of the underperformers in 2023 with subdued movement in most IT stocks.

Another industry expert said that if sentiment turns negative, there will be adverse impact. Uncertainty in the US market may delay recovery in the demand uptick.

“As far as sentiment is concerned, if it turns negative, then there will be adverse impact. Interest rate cycle, upcoming US presidential elections, along with fears of recession only add to the uncertainty. So, it has to be seen whether the current stock market meltdown is more sentiment-driven or fundamental in nature,” Jain said.