How the stocks of Infosys Ltd. and Wipro Ltd. have moved today, a day after their quarterly results, is emblematic of a wider problem afflicting India's $283-billion IT services industry.
The Nifty IT index, a gauge of India's 10 largest IT firms is down 1.9% since bellwether Tata Consultancy Services Ltd. reported earnings that failed to match up to expectations. In contrast, over the same time, the broader NSE Nifty 50 has gained 2%. The quarterly results of TCS peers Infosys and Wipro were largely on point but offered little indication of a demand rebound in the second half of the fiscal.
That’s a concern for investors in India’s $283-billion IT services industry that has been battling tepid client spending in the US for nearly two years now. On top of that, changes in H-1B visa rules as well as likelihood of a “outsourcing” tax is set to disrupt their business model in their biggest market. The fresh concerns on lending standards of US regional banks is yet another worry, since Indian IT companies get at least a third of their revenue from the banking and financial services industry.
“The overhangs on IT are going to persist in the short term,” Kranthi Bathini, an equity strategist at WealthMills Securities Pvt., told Bloomberg. “One needs to carefully watch developments in the US, there is still skittishness and worry with respect to that.”
{{/usCountry}}“The overhangs on IT are going to persist in the short term,” Kranthi Bathini, an equity strategist at WealthMills Securities Pvt., told Bloomberg. “One needs to carefully watch developments in the US, there is still skittishness and worry with respect to that.”
{{/usCountry}}On Thursday, Infosys narrowed its revenue growth guidance to 2% to 3% from 1% to 3% earlier, signalling limited visibility. Wipro too has raised its growth forecast for the year, but only so much.
Only HCL Technologies Ltd., with its 2.4% constant-currency growth in July-September, is seen by Jefferies as the best placed among India's Top 5 IT firms. It is the first Indian IT company to report its AI revenue separately.
Still, Citigroup Inc. analysts warned of rising competitive pressures, AI-led productivity in existing work, and fast-growth of global capability centres as risks for the sector.