Indian IT companies have become wary in the wake of a possible slowdown in western economies, brought on by rising interest rates in the US and the energy crisis in Europe. Analysts believe caution being observed by clients in terms of IT spending and overall budgeting will push IT firms into a bumpy ride ahead. 

IT majors TCS, Infosys, Wipro and HCL Tech reported strong revenue growth and deal wins, for the second quarter of the fiscal. Even the margins, which were under pressure for the last few quarters, saw a slight rise due to rupee depreciation and controlled employee costs.

However, leaders of the industry did not have an outright bullish outlook on the demand environment. Companies are closely monitoring the possible effects of macro-economic headwinds that lie ahead.  

Foreseeing challenges

Infosys CEO, Salil Parekh in his post-results comments said, “This time we are seeing some concerns in high-tech and in telecom in addition to some caution that we were already seeing in financial services and retail.” 

Similarly, TCS CEO Rajesh Gopinathan also had said that “the environment is challenging and requires all of us to remain very vigilant.” 

“There is a certain level of uncertainty today. The market has changed today and I am not sure how it will affect us. Clients are assuming that at some point, this (macro environment) will have some implications for them,” Wipro CEO Thierry Delaporte said in an analyst call. 

Expecting turbulence

Analysts opine that direct effect of the uncertainties could show up in the next fiscal. Mitul Shah, Head of Research at Reliance Securities told businessline, “Caution in terms of a slowdown in decision-making by global giants on IT spending and overall budgeting might create turbulence ahead.” 

There might be some delay in execution and slowdown in ramp-up by the clients but it would not be a total cancellation as the implementation of pre-planned programs are on track, he said. However, budgets that are set to be decided in December or January by companies will be a deciding factor for FY24, he added. 

Mid-tier firms, too, are being watchful. Debashis Chatterjee, CEO of Mindtree, had told businessline that the company is seeing some caution being exercised by a few clients, especially in RCM and CMT, mostly in Europe.

Verticals affected

“Due to holidays and furloughs, revenue growth will be slow in the upcoming quarter. The fourth quarter will see the results of any potential downturn and rapid growth momentum could slow down. The verticals that will be most impacted include retail, manufacturing, high-tech and travel and tourism as they have the highest exposure to the economy,” said Omkar Tanksale, Research Analyst at Axis Securities. 

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