European rate cuts fuel optimism for Indian IT sector
NEW DELHI, INDIA — The recent interest rate cuts by the European Central Bank have sparked optimism within the Indian IT sector.
Industry analysts predict these changes could lead to increased technology budgets from international clients, providing a potential boost alongside ongoing digital adoption by enterprises.
However, experts caution that the tangible impact on the industry might not be felt until the fourth quarter of the current fiscal year, ending in March 2025.
Positive outlook for Indian IT earnings
Kumar Rakesh, associate director at BNP Paribas, who closely monitors the IT sector, noted, “We think the first change will reflect in the management commentary turning more optimistic and references to green shoots in discretionary demand pickup.”
He added that while management sentiment might shift soon, any significant impact on earnings is expected to manifest in 2025.
U.S. interest rate cuts anticipated
Following Europe’s lead, the United States Federal Reserve is anticipated to implement its first interest rate reduction since 2020 during its upcoming meeting.
This move could further bolster the Indian IT sector’s prospects, as Europe and the U.S. are key markets for India’s $250-billion outsourcing industry.
Growth opportunities in outsourcing
The reduction in borrowing costs is likely to enable global companies to undertake larger projects and increase outsourcing to Indian IT firms.
Saurabh Gupta, president of research and advisory services at HFS Research, stated, “With cheaper access to capital, global companies could ramp up larger, high-stakes projects and boost outsourcing to Indian IT firms, albeit the impact will be felt in Q4 2024 or Q1 2025.”
He emphasized that industry leaders remain confidently optimistic about this development.
Innovation driving demand
Despite cautious discretionary spending on technology over the past five quarters, experts believe that innovations such as artificial intelligence (AI), cloud transformation, and cybersecurity solutions will drive demand for outsourcing.
Rakesh anticipates that discretionary IT services demand will begin to rise following a rate cut by the U.S. Federal Reserve.
