JPMorgan expresses concerns regarding the revenue and profit outlook for Indian IT firms, anticipating the effects of dwindling demand to manifest in the coming quarters. The brokerage, maintaining an underweight stance on the Indian IT sector, foresees sustained pressure on margins, falling “meaningfully below” the long-term trend. This is attributed to factors such as elevated onsite costs, the resurgence of travel expenses, limited pricing adjustments, modest recruitment of graduates, and a shift in bargaining power from employees to employers.
Ankur Rudra, Executive Director of Technology & Telecom Research at JPMorgan, emphasized the challenge these companies face in maintaining such low margins and the extended timeline for margin recovery. He highlighted the structural pressures exerted on margins in an interview with CNBC-TV18.
Despite recent corrections, Rudra notes that valuations for certain companies, particularly large ones and several midcaps, remain disproportionately high. This valuation challenge poses an additional hurdle for the sector.
The focus now turns to Accenture’s fourth-quarter results, crucial for Indian IT companies like TCS, Infosys, and Wipro, which tend to follow a similar demand cycle. Rudra underscores the significance of Accenture’s guidance for the upcoming fiscal year, considering it a key metric to gauge incremental demand. Whether Accenture’s success stems from consulting or technology outsourcing will also play a role in assessing its relevance to Indian IT firms, according to Rudra.