Indian IT Sector Growth Boom to End Due to Soaring Inflation, Supply Chain Issues, Predict JP Morgan Analysts

Indian IT sector, worth $194 billion, is facing a demand slowdown this year as employees return to offices.

By Reuters | Updated: 19 May 2022 16:34 IST

Indian IT Sector Growth Boom to End Due to Soaring Inflation, Supply Chain Issues, Predict JP Morgan Analysts

Photo Credit: Facebook/ JP Morgan

The slowdown may worsen in 2023 partly due to a potential decline in orders from the US

Highlights

India's IT services industry is facing a demand slowdown this year
The brokerage expects the slowdown to worsen in 2023
JP Morgan lowered TCS to "underweight" rating from "neutral"

Soaring inflation, supply chain issues and the hit from the Ukraine war will bring an end to the growth boom India's IT services industry enjoyed during the pandemic, JP Morgan analysts said on Thursday as they downgraded the sector to "underweight".

The $194-billion (roughly Rs. 15,068,27 crore) sector whose software services helped businesses adopt to pandemic-era practices of online shopping and remote working is facing a demand slowdown this year as employees return to offices and the Russia-Ukraine war weighs on spending from clients in Europe.

"We see peak revenue growth behind us and EBIT margins trending down from inflation, mean reversion," JP Morgan said.

[Sponsored] Samsung Galaxy S24: The Ultimate Camera Phone With Smarter On-Device AI

"While the bottom-up outlook remains positive from most Services, Software and SaaS names YTD, and the tech spending cycle remains buoyant structurally, we feel there are more downside risks to current earnings assumptions."

The brokerage expects the slowdown to worsen in 2023 partly due to a potential decline in orders from the key market of the United States, where economic growth has started to weaken.

It lowered Tata Consultancy Services, India's top IT exporter, to "underweight" rating from "neutral" but stayed "overweight" on rival Infosys.

India Up 2 Ranks in Ookla Speedtest Global Index

While industry margins are expected narrow because of a talent war that has pushed up costs of hiring and retaining employees, Infosys' margin reset is early and gives it bandwidth to invest and maintain growth, JP Morgan said.

Infosys, the number two player in the industry, had reported a 3 percent fall in operating margins for the January-March quarter.

© Thomson Reuters 2022

Should you buy a 4G or 5G budget phone? We discuss this on Orbital, the Gadgets 360 podcast. Orbital is available on Spotify, Gaana, JioSaavn, Google Podcasts, Apple Podcasts, Amazon Music and wherever you get your podcasts.

Affiliate links may be automatically generated - see our ethics statement for details.

Comments

For the latest tech news and reviews, follow Gadgets 360 on X, Facebook, WhatsApp, Threads and Google News. For the latest videos on gadgets and tech, subscribe to our YouTube channel. If you want to know everything about top influencers, follow our in-house Who'sThat360 on Instagram and YouTube.