homemarket Newsstocks NewsHere is how spending cut by US and European banks can impact the Indian IT sector
Here is how spending cut by US and European banks can impact the Indian IT sector
Banking, financial services, and insurance (BFSI) is the largest vertical for Indian IT services companies, contributing significantly to their revenue. After the bankruptcy of Silvergate, Silicon Valley Bank, and Signature Bank in the US and the merger of Credit Suisse and UBS in Europe, banking and financial services (BFS) clients are expected to reduce discretionary tech spending in the first half of FY24.
Although the Indian benchmark indices BSE Sensex and Nifty 50 ended on a positive note today, the Nifty IT index closed down O.98 percent., following the banking sector woes in the West.
Banking, financial services, and insurance (BFSI) is the largest vertical for Indian IT services companies, contributing significantly to their revenue. After the bankruptcy of Silvergate, Silicon Valley Bank, and Signature Bank in the US and the merger of Credit Suisse and UBS in Europe, banking and financial services (BFS) clients are expected to reduce discretionary tech spending in the first half of FY24. Analyst are now cautious that the banking sector woes can have a negative the impact on the growth scenario of Indian IT companies.
According to Kotak Institutional Equities, large US and European banks were big spenders on technology. They spent aggressively on Cloud migration and technology upgrades, so that they could compete with the digital first fintech companies.
However now as these banks are under stress, Kotak believes their focus will be on capital preservation. And therefore they might turn prudent on technology spending. Therefore Kotak says there could be a pause or a slowdown in the pace of digital and even Cloud programs.
Kotak anticipates March quarter earnings for the IT sector to be weak, with 1-2 percent cut in growth rates. While in the June quarter, that is Q1FY24, they expect a moderate uptick. However they expect things to normalise from Q2FY24 onwards.
According to Ambit Capital, IT companies with exposure to Credit Suisse include TCS, Wipro, Cognizant and Tech Mahindra. While IT companies with exposure to UBS include TCS, Wipro, Cognizant, Infosys and HCL Tech. Mphasis has exposure to First Republic Bank, while Infosys, TCS, Cognizant also have small exposure in Silicon Valley Bank.
(Edited by : Nishtha Pandey)
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