JP Morgan analysts predict an end to India’s IT industry growth boom due to soaring inflation, supply chain issues

JP Morgan analysts said on Thursday that soaring inflation, supply chain problems and the impact of the Ukraine war would end a growth boom that was not expected. India’s IT services industry enjoyed during the pandemic.

The $194 billion (approximately 15,068.27 crore) sector that software services has helped businesses adopt to adopt online shopping and remote working methods during the pandemic is facing faces falling demand this year as employees return to the office and the Russo-Ukrainian war weighs heavily on spending from customers in Europe.

“We see the highest revenue growth behind us and EBIT margins trending downward due to inflation, meaning a reversal.” JP Morgan speak.

“While the bottom-up outlook remains positive from most Services, Software and SaaS names compared to YTD, and the technology spend cycle remains structurally stable, we feel there is plenty of downside risk on current earnings assumptions.”

The brokerage expects the downturn to worsen in 2023 in part due to a drop in orders from its key market, the United States, where economic growth has begun to wane.

It descends Tata consulting servicesIndia’s top IT exporter, to rank “lightweight” from “neutral” but still “overweight” compared to the competition Infosys.

While industry margins are expected to be narrow as a talent war has driven up hiring and retention costs, Infosys’s reset of margins is premature and gives it the bandwidth to invest and sustain growth, said JP Morgan.

Infosys, the second-largest player in the industry, reported a 3% drop in operating profit for the January-March quarter.

© Thomson Reuters 2022

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