IT slumps, but no need to get glum

economictimes.indiatimes.com:

infotech counters while giant tech companies are leading a global run-up in equities. Management commentary points to a slowdown in discretionary demand for Indian IT services by companies in the US and Europe, and revenue and profit guidance is sombre. Hiring has frozen up, and the scenario is expected to persist.

Attrition has declined, which should keep costs in check, but not to the extent desired. The deterioration in the external environment is being transmitted through India's concentrated IT exports that have an impact on economic growth. There are knock-on effects on domestic demand as wage growth slows among its highest-paid white-collar workers.

Neither, however, is very threatening, just yet. The intensity of a recession in advanced economies is undetermined, but with a distinct tilt towards expectations of it being shallow. This makes cautionary delay in corporate technology spending a likely and easily reversible condition.

Indian infotech companies will gain from a more realistic valuation when demand recovers. The slowdown in hiring after a period of surging attrition brought on by remote work will provide stability in costs and processes. Generative AI, which is fuelling a global market rally, is unlikely to bypass Indian IT companies in productivity enhancement and in securing new opportunities as AI becomes embedded in business processes.

Indian equities could resume their rally as more results are delivered from industries feeding local demand. Banks are posting good numbers with consumer credit demand soaring. Consumption at the higher end is offsetting weakness in rural spending, which is also recovering, although at a slower pace.