DBT Bureau
Bengaluru, 5 August 2024
Nifty IT Index, which measures the movement of major IT services and technology firms in India, closed 3.26% down at 38,435 on Monday as the global stock markets including broad gauges in India- Nifty & Sensex- witnessed a rout.
Nifty IT Index, which has seen some smart gains in the last two weeks, fell sharply in the initial trade but recouped some lost ground towards the fag end.
However, the question arises, what can potentially change for Indian IT firms if the US economy slows down or falls into recession? It is also pertinent to see whether the fundamental operating conditions have changed for the Indian IT firms.
No change in operating environment as of now:
In the first quarter earnings of IT firms, management of several companies has indicated that discretionary spend is yet to come back. Some green shoots in the BFSI, healthcare and retail verticals have been seen. But they cautioned that status quo continues. In this backdrop, the current fears about US recession may not alter the operating conditions for Indian IT industry.
More cost takeout deals may come to their ways:
Usually, slowdown is a time when most IT companies benefit. Because enterprises give them more cost savings IT projects as cost pressure increases. In this context, Indian IT firms are well-placed to win more cost takeout deals if the recession hits the US economy. Moreover, cost pressure can lead to more offshoring. It means more work will get executed from India. But in this kind of environment, there will be some winners and some losers among Indian IT firms.
Indian IT firms are different from US technology companies:
Indian IT services firms have different operating model than US technology firms. Companies like Microsoft, Google, SAP, Intel, Apple and many others are technology product companies. They have their own platforms, which are adopted globally. But in case of Indian IT firms, they are focussed on services and maintenance side of business. Though many domestic IT firms have come up with their own platforms in various domains, they are no match for global product companies. So, a tight demand environment affected the global technology giants more than Indian IT firms.
However, market runs on sentiment and a risk-off mode drown all in the markets. In this context, Indian IT stocks may see sharp correction but investors’ buying interest may soon come back given valuations are not that high as compared to global counterparts.
