Rate cut uncertainty, tariff wars stall Indian IT recovery
NEW DELHI, INDIA — The Indian IT sector is facing a prolonged recovery due to uncertainties surrounding rate cuts and escalating tariff wars, according to a report by Mirae Asset Sharekhan.
These factors are expected to dampen near-term sentiment, with both global and domestic challenges affecting the sector’s growth trajectory.
The report highlighted several macroeconomic risks, such as rupee appreciation, adverse cross-currency movements, and a potential U.S. recession. These issues, compounded by the contagion effects of a banking crisis, could further slow technology spending globally.
Tier-1 vs. Tier-2: Mixed performance in revenues
Revenue trends revealed contrasting performances between Tier-1 and Tier-2 IT companies. Tier-1 firms reported modest constant currency (CC) revenue growth of 0-3.8% quarter-on-quarter (QoQ), hindered by seasonality and furloughs.
In contrast, Tier-2 companies demonstrated resilience, outperforming seasonal trends and posting stronger growth figures.
Profitability also varied across tiers. Most Tier-1 companies saw sequential EBIT margin improvements due to operational efficiencies despite wage hikes. However, Tier-2 firms experienced mixed EBIT margin trends during the same period.
Optimism in medium-term prospects
Despite short-term setbacks, the medium- and long-term outlook for Indian IT companies remains positive. Enterprises are expected to gradually increase discretionary spending, particularly in the Banking, Financial Services, and Insurance (BFSI) sectors.
Management commentaries suggest an improving macroeconomic environment with robust deal pipelines and emerging green shoots in discretionary spending.
“IT companies are expected to engage in a larger degree of transformational programs to stay relevant and agile in an evolving technology and AI-driven landscape,” the report noted.
Deal momentum shows promise amid risks
A significant positive trend is the year-on-year improvement in deal win momentum across most IT service providers, reflecting steady business opportunities despite uncertainties. However, risks remain high for the sector.
The report warned that rupee appreciation, geopolitical tensions from tariff wars, and persisting macroeconomic headwinds could moderate technology spending further.
Tariff wars add to global uncertainty
The escalation of tariff wars under the Trump administration’s trade policies has already impacted global trade dynamics. India’s export-driven IT sector could face further challenges if tariffs on Indian goods escalate or if retaliatory measures disrupt supply chains.
With the U.S. being India’s largest trade partner, any trade disruptions could significantly affect IT exports and profitability.
Navigating a complex landscape
While the sector is poised for eventual recovery, immediate challenges necessitate cautious optimism as companies navigate economic uncertainties and geopolitical tensions.
Transformational programs and adaptability will be key for Indian IT firms to stay competitive in an AI-driven global economy.
