Nomura downgrades Indian IT Sector

Nomura- a Japanese headquartered global brokerage has downgraded several top IT companies. It expects that the revenue growth will decline going ahead. This is the second downgrade of the Indian IT sector of late after JP Morgan too slashed the target prices of many Indian IT companies. They have highlighted some of the reasons as stated below.

As we know that nearly 60-70% business of the Indian IT sector comes from USA, any headwinds there can affect the Indian IT industry considerably. Due to the macro headwinds in USA and other economies of the world, clients may delay their technology spending and focus only on their core functions. This can affect the revenue growth. Fast changing macro-economic conditions like the hawkish stance taken by the fed (USA central bank akin to our RBI) due to which US 10-year G-sec yield has crossed 3% mark. Hawkish stance in terms of monetary policy means that the central banks are increasing the interest rates at which banks borrow from the central banks. The US central bank has resorted to this measure due to its highest ever inflation in the last 40 years. This action of the fed will increase the cost of borrowings for the corporates which can ultimately subdue the demand for goods and services in an economy. The subdued demand can ultimately lead to the reduced spending by the clients on their discretionary technology spends.

Also, Indian IT sector has been marred by the great resignation theme across the globe. This has led to supply side challenges for the IT sector as a whole. The attrition rate in the industry has crossed 20%+ on a last twelve months basis which is very high.

Although, Enterprises are willing to spend on their digital transformation journey but growth rates on spends are likely to be affected. The digital theme still holds good but the rate at which it happened during the previous years’ isn’t likely to be replicated in the near future.

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