Indian IT services industry is on the wrong side of American cutting costs, says expert

Mowat’s remarks come on a day when shares of Indian IT services firms are witnessing a slowdown. Subdued performance and weak guidance from TCS and Infosys - India's top two software services companies have dragged its peers along with them, even before they declare their respective quarterly results. In fact, the Nifty IT index saw its biggest fall in three years on April 17. The steep fall also brought down the companies’ valuation multiples below the ten-year averages.

During the COVID-19 pandemic too, experts had said that cost-cutting efforts of corporate America in 2020 — reducing rent, cutting travel, and especially eliminating jobs — would dramatically improve the bottom line and accelerate profits, which was one of the big reasons why the market was rallying then

Mowat said that the US market, meanwhile, is seeing a narrow upmove. "Big mega stocks that are cutting costs are moving higher, when you look at the broader, like the Russell indices, etc. That might be a better reflection of what is going on in the economy." The Indian economy and currency are relatively stable, the Emerging Market Strategist pointed out.

He believes the IT sector may continue to underperform in India while infrastructure spend is seeing a meaningful rise in the country. According to him, there isn't a clear sector trend in the Indian stock market. The best performing stock year-to-date is ITC, which tends to reflect a relatively defensive bias in investors’ thinking. HDFC has done alright, but some of the other banks have gone down, he said.