Indian IT majors are likely to register mid-to high-single digit growth over the next few quarters, indicating a slower-than-expected recovery even after Donald Trump’s re-election as the US President raised hopes of a corporate tax rate cut and the resultant increase in corporations’ discretionary spending and IT budget, brokerage firm CLSA has said.
The sector, investment analyst Sumeet Jain said, also continued to face structural challenges such as budgets shifting to software from information technology (IT) services, the emergence of global capability centres (GCCs), and the increasing market share of the India arms of global IT companies such as Accenture and Capgemini, prompting the brokerage to adopt a cautiously optimistic outlook.
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The firm projected a growth rate between 6% and 8% for IT majors such as Tata Consultancy Services, Infosys and Wipro, in divergence with brokers on the Street who predict a double-digit growth.
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“If you look at Trump 1.0, the corporate tax cuts led to significantly increased discretionary spending. Now, this time around, the tax cuts will not be as critical. Last time it went from 35% to 21% but this time it will be from 21% to 15%, most likely. So don’t expect the kind of ‘bazooka experience’ that we had back in 2017-18 (Trump’s first term as president),” Jain added.
The US is the largest market for India’s $254-billion IT sector, whose overall contribution to the American GDP is $80 billion, according to industry body Nasscom. The sector saw a market rally on the news of Trump’s election on the notion that tax rate cuts would result in higher discretionary spends, which in turn will lead to expanded IT budgets for these companies.
While IT firms have seen recovery over FY24 in the first half of the current fiscal, the outlook for the rest of the year remains muted given Q3 has fewer working days for North American and European clients and higher furloughs.
In addition to challenges on the client budget side,
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