TCS, Infosys Wipro: How Credit Suisse, SVB collapse can impact Indian IT sector

India’s top IT companies, which draw up to 40 per cent of their revenues from the Banking, Financial Services, and Insurance (BFSI) companies, face strong headwinds due to the emerging banking crisis in the West. Many believe the collapse of Silicon Valley Bank, Credit Suisse, Silvergate, and First Republic Bank might end up impacting IT firms' new deals in the short term.

In fact, the Indian Union Minister of State for IT, Rajeev Chandrasekhar, echoes the concerns. He agrees that the revenues from BFSI can take a hit, but he is optimistic about the industry's outlook.

"I understand that the banking and financial sector is a major contributor to Indian IT companies. We need to let this play out,” Chandrasekhar told Business Today.

He added: “I feel like it might not be an existential type of problem for Indian IT. Certainly, one sector may show degrowth, but other sectors may grow,” the IT minister added."

Data from IT companies' earnings reports show that BFSI is a major contributor to their revenues.

Meanwhile, industry experts opine that the direct impact of the banking crisis on the Indian IT sector will reflect in the form of a reduction in the number of new deals and further negotiations of existing contracts.

“Firstly, the uncertain environment impacts new projects. So, we would see a slowdown in new builds. Second, it puts cost pressure. Thus, we will see increased outsourcing and further negotiations for existing contracts,” Vineet Nayar, former CEO of HCL Technologies, told Business Today.

Also, Wedbush Securities highlighted in a note last week that the Indian IT sector might witness a slowdown in deals from BFSI companies.

A report released by JP Morgan on Friday highlighted that TCS, Infosys, and LTI Mindtree had the most exposure to the ongoing crisis. The report claimed that their exposure to the recently collapsed Silicon Valley Bank could be 10-20 basis points.

Market analysts also foresee the negative impact of the banking crisis on the Indian IT sector. Vijay Chopra, MD and CEO of Enoch Intermediaries, said, “Right now the Indian IT sector is vulnerable. BFSI contributes to a large extent to IT companies' revenues. The outlook right now is very conservative, I would not recommend buying IT right now as they are already facing headwinds.”

Equity strategist Niilesh Talak Dedhia told Business Today, “2-3 per cent cuts cannot be ruled out in the IT sector.”

Despite short term fears, analysts and industry experts believe that the crisis might come to an end with intervention of central banks across the world.

Dedhia explains that the global central banks' intervention might mean that the Indian IT sector is cushioned. He said, “The latest developments might act as a laggard for the next 6 months, but active measures are being taken to rescue the banks.”

TV Mohandas Pai, former director of Infosys, told Business Today that although alarming, the extent of the crisis is not as severe as the 2008 financial crisis.

“The banking crisis will be subdued, central banks and authorities across the world are trying their best to limit it, it is not as full blown as 2008. Indian IT companies do not have to worry yet,” Pai told Business Today.

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