- The gloomy demand environment for the Indian IT players may persist in the short term, but analysts believe green shoots are emerging which could drive the sector’s growth in the medium to long term.
- The Indian IT sector may witness a continuation of muted demand in the short term, largely due to the conservative tech spending of US BFSI clients.
- “Tech spending as a percentage of sales came in at 6.5 per cent in Q1CY24 versus 7.4 per cent in Q4CY23 and the past eight-quarter average of 6.8 per cent,” said Antique.
Indian IT Sector Faces Short-Term Hurdles but Medium to Long-Term Prospects Look Promising
Muted Demand in the Short Term
The Indian IT sector may witness a continuation of muted demand in the short term, largely due to the conservative tech spending of US BFSI clients. However, promising signs of recovery are emerging, such as recent strong deal bookings, which are expected to fuel the growth of Indian IT players in the medium to long term, according to brokerage firm Antique Stock Broking.
Conservative Tech Spending by US BFSI Clients
The brokerage firm pointed out that the US banking results suggest there still exists a conservative stance toward tech spending, with most banks witnessing a decline in tech spending as a percentage of revenue. “Tech spending as a percentage of sales came in at 6.5 per cent in Q1CY24 versus 7.4 per cent in Q4CY23 and the past eight-quarter average of 6.8 per cent. The overall banking business outlook for large banks and consumer sentiment remains fine with lower unemployment, and rising home and stock prices. Despite this, banks remain conservative in investing in technology as they want to see the macros improving and the global political uncertainties recede before they invest in medium to long-term transformation projects,” said Antique.
Deal Bookings and Future Growth
However, deal bookings have been strong as companies are experiencing pent-up demand in the BFSI sector, which is expected to drive growth in the medium to long term, Antique said. The brokerage firm highlighted that the Q4FY24 results for Indian IT services witnessed a decline in BFSI revenue. “All large IT companies reported below-average performance in the BFSI vertical, with Infosys and Wipro witnessing more than 8 per cent decline in revenue. Most companies’ commentary suggested that the macroeconomic impact of high inflation and peak interest rates within the BFSI sector led to a cautionary approach by large banks,” said Antique.
Conclusion
In conclusion, while the Indian IT sector is currently facing a muted demand environment due to conservative tech spending by US BFSI clients, there are promising signs of recovery. Strong deal bookings and a cautious yet strategic approach to tech investments are expected to drive growth in the medium to long term. Investors are advised to keep an eye on large-cap IT stocks, which are better positioned to weather any further slowdowns.
