Economic uncertainty in the US and Europe are showing up in muted growth of India's infotech sector. Sober guidance accompanied the latest quarterly results of top IT companies dealing with clients who are demanding more for less. Tariff negotiations are dragging on between the US and its principal trading partners, and American companies are treading cautiously over tech budgets. On its part, generative AI is dialling down the need for outsourcing business processes to large teams operated by vendor companies in India. Indian IT firms are likely to see flat topline growth over the financial year, although they will be able to protect margins by retooling operations.
IT companies have already dialled down hiring, and attrition rates are stabilising. The wage bill is in control through moderating salary growth and AI-optimised staffing. Also, top-tier IT firms are skilling their staff as they chase new AI-driven business. Restructuring organisations to deliver AI-assisted services opens up more opportunities to compress costs. Indian IT industry has demonstrated its resilience in a shifting technological landscape, and should be able to manage the latest transition.
Investors have turned cautious about the immediate upside in Indian IT stocks. Valuations are rich and deal-making is sedate as overseas enterprise clients squeeze discretionary spending. Yet, there are pockets of strong activity among industry verticals, and smaller IT firms have more headroom for growth. IT firms declared their unimpressive results in the middle of broad-based selling of Indian equity by FIIs. Overall corporate performance has been subdued, but IT stocks have taken a mauling. The Nifty IT and FMCG indices have faced sustained pressure since the results, and valuations may have to correct some more before sector rotation begins to work to their advantage. Business outlook could improve for IT companies with clarity over Trump's reciprocal tariffs and their impact on US growth and inflation. There may be a couple of bumpy quarters ahead.
IT companies have already dialled down hiring, and attrition rates are stabilising. The wage bill is in control through moderating salary growth and AI-optimised staffing. Also, top-tier IT firms are skilling their staff as they chase new AI-driven business. Restructuring organisations to deliver AI-assisted services opens up more opportunities to compress costs. Indian IT industry has demonstrated its resilience in a shifting technological landscape, and should be able to manage the latest transition.
Investors have turned cautious about the immediate upside in Indian IT stocks. Valuations are rich and deal-making is sedate as overseas enterprise clients squeeze discretionary spending. Yet, there are pockets of strong activity among industry verticals, and smaller IT firms have more headroom for growth. IT firms declared their unimpressive results in the middle of broad-based selling of Indian equity by FIIs. Overall corporate performance has been subdued, but IT stocks have taken a mauling. The Nifty IT and FMCG indices have faced sustained pressure since the results, and valuations may have to correct some more before sector rotation begins to work to their advantage. Business outlook could improve for IT companies with clarity over Trump's reciprocal tariffs and their impact on US growth and inflation. There may be a couple of bumpy quarters ahead.
