Another Washout Year For IT?

India's IT services sector is bracing for a near-term slowdown as tech investments in the US and European markets are likely to remain muted due to high interest rates and inflation

- Rohit Chintapali

DURING CALENDAR year 2023 quarterly results discussions, blockbuster dealmaking took centre stage for India’s top IT players. Despite the spotlight, the financial payoff has yet to materialise amid a slump in discretionary spending throughout the year.

The $250-billion Indian IT services sector is unmistakably bracing for a near-term slowdown, influenced by restrained tech investments in the US and European markets grappling with high interest rates and inflation. This is reflected in consistent revenue guidance cuts across major IT players as they deal with tough market conditions. Complicating matters, global disruptions like Russia’s prolonged war in Ukraine and the Israel-Hamas conflict add another layer of complexity to an already challenging landscape.

In a note in October, JP Morgan analysts said that investors had assumed FY24 to be a washout and shifted focus to FY25, hoping for a rebound. With two quarters still to go in FY24, the situation looks pretty grim for the sector.

Guidance Takes A Hit

Infosys revised its FY24 revenue growth guidance from 1 per cent-3.5 per cent in Q1 FY24 to a narrower range of 1 per cent-2.5 per cent in Q2 FY24, citing challenges such as reduced discretionary spending and delayed decision-making in an uncertain macro-environment. On similar lines, HCLTech, which had initially projected 6-8 per cent constant currency revenue growth for FY24, adjusted its guidance to 5-6 per cent in Q2. Despite this, the company maintained its 18-19 per cent operating margin target.