JPMorgan is worried about the topline and margin prospects of Indian IT companies. The firm believes that the impact of slowing demand will reflect in the next few quarters.
The brokerage, which has an underweight on the Indian IT sector, expects margins to remain "meaningfully below" the long-term trend due to high onsite inflation, return of travel costs, limited price hikes, underwhelming graduate uptake and a reversal in employee-employer bargaining power.
“The real point is how long can these companies keep these very low margins, how long will it take for them to recover margins? That is where we think there is a lot more structural pressure on the margins,” said Ankur Rudra, Executive Director, Technology & Telecom Research at JPMorgan told CNBC-TV18 in an interview.
Despite the correction, Rudra still finds valuations of some companies to be very high, which remains the challenge. “For a significant proportion of the companies, especially some of the large companies and many of the midcaps, valuations remain significantly higher,” he said.
“Even if Accenture really does well, we will have to see if it comes from consulting or technology outsourcing and how much of that is relevant for the Indian IT companies,” he said.
For the full interview, watch the accompanying video