Even as talks of a possible recession in the US economy gaining traction with brokerage houses expecting it to hit in the next one year, analysts feel that it will adversely affect the IT spending of the US as well as Europe and, in turn, hit the information technology (IT) companies in India, including TCS, HCL Tech and Infosys.
Indian IT firms depend on the US market for around 40 per cent of their revenues.
On the likelihood of a recession, US-based brokerage firm Goldman Sachs in its report has said it sees a 30 per cent probability of US entering a recession in the next year and a 25 per cent conditional probability in the second year if one is avoided in the first.
Bank of America Securities also sees a roughly 40 per cent chance of a US recession next year, with inflation remaining persistently high.
The Bengaluru-based firm, which reported its June quarter earnings on Sunday, is considered the industry’s weathervane.
If it’s optimistic about orders, then there’s reason to believe that the the deal pipeline isn’t drying up. US and European firms — from banking, manufacturing and retail to health care and utilities — are still entering offshoring contracts, particularly those that will help them automate processes to cut costs.
Evidence of heightened activity is also visible in last quarter’s 12 per cent year-on-year jump in Bengaluru office rents — three times as steep as Shanghai, Singapore or Sydney, according to Knight Frank.
In the world’s code-writing capital, information technology drives more than two-fifths of office-space leasing. If the tenants are paying more for space, they must be upbeat about the future.
When the G20 met in April, dark clouds were already gathering on the horizon of the world economy, which prodded the IMF to downgrade the global growth forecast to 3.6% for this year.
The IMF made no bones about the fact that 2023 growth rate could worsen considering the immense downside risks. Since then, Georgieva has pointed out that these “risks have materialised” and the “multiple crises facing the world have intensified”
Meanwhile, Indian corporates are bracing for dismal quarters ahead. In a survey conducted by brokerage and research firm JP Morgan, the respondents, comprising 142 tech companies’ CIOs, estimated a 30-31% chance of a recession hitting the US and European economies and a 35-38% chance of growth slowing down over the course of the next 12-18 months.
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