India's top IT companies, which draw up to 40 per cent of their revenues from the Banking, Financial Services, and Insurance BFSI companies, face a lot of headwinds due to the emerging banking crisis in the West. The Indian Union Minister of State for IT, Rajeev Chandrasekhar, echoes the concerns. He agrees that the revenues from BFSI can take a hit, but he is optimistic about the industry's outlook.
I understand that the banking and financial sector is a major contributor to Indian IT companies. Chandrasekhar told Business Today that we need to let this play out.
He said it felt like it might not be an existential type of problem for Indian IT. The IT minister said that one sector may show signs of degrowth but other sectors may grow. BFSI is a major contributor to revenues, according to the data from IT companies' earnings reports.
The uncertain environment affects new projects. It also puts cost pressure on the other end of the equation. Vineet Nayar, the former CEO of HCL Technologies, told Business Today that there will be increased outsourcing and further negotiations for existing contracts.
In a note last week, Wedbush Securities highlighted that the Indian IT sector might see a slowdown in deals from BFSI companies.
A report released by JP Morgan on Friday pointed out that TCS, Infosys and LTI Mindtree had the most exposure to the ongoing crisis. The report claimed that their exposure to the recently collapsed Silicon Valley Bank could be 10 -- 20 basis points.
Market analysts think that the banking crisis will have a negative impact on the Indian IT sector. Vijay Chopra, MD and CEO of Enoch Intermediaries, said: Right now, the Indian IT sector is vulnerable. BFSI is a big part of IT companies' revenues. The outlook is very conservative, so I wouldn't recommend buying IT right now, as they are already facing headwinds. Equity strategist Niilesh Talak Dedhia told Business Today that 2 -- 3 per cent cuts cannot be ruled out in the IT sector. Analysts and industry experts believe that the crisis could come to an end with intervention of central banks across the world, despite short term fears.
Dedhia explains that the global central banks intervention could mean that the Indian IT sector is cushioned. He said that the latest developments might act as a laggard for the next 6 months, but active measures are being taken to rescue the banks. TV Mohandas Pai, former director of Infosys, told Business Today that the crisis is not as severe as in 2008, and that the extent of the crisis is not as severe as that of the 2008 financial crisis.
Central banks and authorities across the world are trying to limit it, and it is not as full blown as 2008 when the banking crisis will be subdued. Pai told Business Today that Indian IT companies don't have to worry yet.