Home/ News / India/  TCS, Infosys, Wipro: How global banking woes may impact Indian IT companies

The US banking, financial, services and insurance (BFSI) sectors is a key revenue segment for top Indian information technology (IT) companies and a banking crisis in the US and Europe will hurt inflows and growth in these firms, analysts believe.

The IT companies such as Tata Consultancy Services (TCS), Infosys, Wipro, LTIMindtree, and Cognizant, which have high exposure to US banking institutions, may be impacted if the turmoil in the banking sector worsens.

The BFSI contribution to the revenue of these IT companies is above 25 per cent, according to earnings reports.

According to analysts, the collapse of large banking institutions may not only lead to a reduction in existing business but also trigger reduced tech spending in the future along with delayed deal closures.

Impact on growth in 1HFY24 for Indian IT

The recent developments around bankruptcy of Silvergate, SVB and Signature Bank in the US and UBS-CS merger in Europe will likely impact growth for Indian IT in 1HFY24, and bring down overall growth for FY2024, said domestic brokerage house Kotak Institutional Equities.

The brokerage believes TCS and Infosys are better positioned, whereas Wipro and Cognizant are vulnerable.

It expects a growth slowdown in FY2024 to play out in the form of a weak March 2023 quarter, followed by a moderate uptick in 1QFY24 and normalisation in 2QFY24.

Kotak believes there can a pause or slowdown in pace of digital/cloud programs due to cut in discretionary spending in the near term. Cut in discretionary spending will impact all companies.

Lower exposure to BFS will reduce impact on HCL Tech and Tech Mahindra, the brokerage said, adding that higher focus on cost take-outs will generate opportunities in the form of application rationalization, higher offshoring, captive carve-outs, enabling automation and vendor consolidation.

“TCS and Infosys are better positioned among Tier 1 IT. LTIM and Mphasis can benefit among mid-tier; the latter, however, will face near-term headwinds due to outsized exposure to BFS and significant exposure to the impacted mortgages sub-vertical," it said.

The brokerage also said that CTSH and Wipro are vulnerable among Tier 1, higher consulting exposure increases vulnerability for the latter.

“Caution among BFS firms in developed markets, following recent developments around bankruptcy of Silvergate, Silicon Valley Bank and Signature Bank in the US and UBS-CS merger in Europe will likely lead to further curtailing of discretionary tech spends in the near term," the note said.

“Spending on cost take-outs will pick up, but will yield benefits in 2HFY24 or later," it said while expecting further polarisation of growth between winners and losers in FY2024.

“Current woes in the banking sector can impact sequential growth by 1-2% in 1QFY24. This assumes quick resolution to the global banking crisis and problems remaining localized to BFS. Our current growth forecast for leaders, viz, for FY2024E, stands at 8%, which may get impacted by 1-2% due to the current crisis. A full-blown recession will have a bigger impact," it said.

BFS exposure

According to Kotak, BFS exposure, excluding insurance, for TCS stands at 29 per cent, CTSH at 19 per cent, Infosys at 26 per cent, Wipro at 27 per cent, HCLT at 14 per cent and TM 12 per cent.

Europe BFSI exposure for Infosys, Wipro and CTSH stood at 4.9 per cent, 11.7 per cent and 6.2%, respectively. The brokerage estimates TCS Europe exposure at 13 per cent.

Exposure to regional banks in the US is the highest for CTSH, followed by Infosys/TCS. TechM and HCLT have low exposure to regional banks.

Meghna Sen
Business journalist tracking markets, companies, economy and crypto for Livemint. She has 6 years of experience with online and print publications. Email: meghnasen08@gmail.com
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Updated: 21 Mar 2023, 03:22 PM IST
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