Major Indian tech companies like Infosys and TCS delivered stellar results in the Q4 earnings season. For the first time in its history, TCS crossed $20 billion in revenue while Infosys’s saw a rise in revenue by 9.1% to $3.06 billion. However, it is to be seen whether this upsurge will continue in the future due to the ongoing international issues.
Here are a few takeaways for the Indian IT sector:
The Banking and Financial Services (BFS) space is a major revenue source for Indian IT firms. However, this sector witnessed a decline in profits in 2019. This led to shrinkage in spending on technology by these firms. As a result, the revenues generated through BFS clients for Indian IT companies also fell. BFS companies have witnessed a slowdown due to the sluggishness in the global economy and the ongoing trade tensions. The impending exit by Britain from the EU has resulted in greater uncertainty for European BFS firms. All this could reduce profits for Indian IT companies in the near future which could in turn impact IT stocks.
Indian IT companies have been grappling with the trouble of rising number of US visa rejections. Indians constitute the highest number of the US H-1B visa beneficiaries (approximately 70% according to NASSCOM data) and this is a testimony to the demand for the skill sets of Indian nationals in the IT sector. Under U.S. president Donald Trump’s policy to ‘Buy American, Hire American’, visa petitions from Indian IT firms like Infosys, Wipro, TCS are facing more rejections compared to US tech giants like Facebook and Amazon who are facing no issues in inducting Indian talent into the US.
To add to the problem, the US has started banning the workers of the spouses of H-1B holders, i.e., the H4 EAD work visa programme, the largest beneficiaries of which were Indian female engineers. All this has severely impacted the Indian IT sector as tightening of visa norms have significantly increased employee costs of Indian IT players. Also, the low unemployment rate and the lack of required skills in the IT labour force will push profits lower which will affect IT stocks.
The ongoing complications with the Britain-EU divorce deal have added to the uncertainties and risks of Indian IT companies. The United Kingdom is the second biggest market for the Indian IT industry after the US and constitutes 17% of its $167 billion revenues. The stalemate over the Brexit deal is adding to the uncertainties for Indian IT companies operating in the UK. Previously banks and financial services companies could operate from the UK and serve the EU. After Brexit, BFS businesses are being forced to shift their operations outside UK due to EU regulations. And since BFS firms are the biggest revenue source for Indian IT firms, their businesses could take a hit. Also, if the Britain EU separation materializes, UK would have to change its data protection policies which would demand higher investment from Indian IT companies to continue doing business across UK and EU simultaneously.
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