A possible slowdown in the US economy is unlikely to hit the growth momentum for Indian IT services companies, say analysts, because their clients in the largest market would outsource more digital technology-led services that they have built over the past couple of years by also hiring local workforce in the US.
Companies such as Tata Consultancy Services, InfosysNSE -0.31 %, HCL TechnologiesNSE 0.32 % and WiproNSE 0.08 %, besides midtier firms like L&T Infotech and CSS Corp are already disrupting their business models where they look at building value through productivity and IP, moving away from the traditional cost-arbitrage model. “If it is a moderate downturn, given the digital imperative, hopefully Indian IT can ride it,” Sangeeta Gupta, senior vice-president at Nasscom, told ET. “Digital technology spend is significantly low and I think the headroom for growth is much higher… Banks and financial services companies are already thinking about what can be done to invest in these technologies to deal with such change.”
Last week, Goldman Sachs cut the US economy growth forecast for the first half of 2019 to 2% from 2.4%, saying it was still “not worried about a recession”. While the bank was optimistic of a soft landing of the US economy, a Duke University survey in December of US CFOs claimed nearly half the chief financial officers expected the country to hit a recession by end-2019. The worst-case projections included a fall in capital spending with flat hiring.
“In the last economic crisis in 2008-2009, offshore outsourcers held on fairly well initially, and made adjustments to boost revenue and profitability. Hiring continued to happen although at a reduced pace. However, towards the fag end of the recession, it was clear that IT firms were witnessing pricing pressures and slowdown in business velocity,” said Manish Tandon, chief executive of CSS Corp. He added that the industry had shown tremendous resilience in the past and reinvented itself through flexible business models.
“Hence, it might emerge as a strong partner for global organisations to wade through their economic pressures.”