Insight Point: Leading Indian tech firms are facing a challenging year ahead as they aim to recover from what JPMorgan analysts have called a “washout” year. The sector has been affected by reduced tech spending, delayed projects, and canceled contracts from US-based clients, citing concerns over slower economic growth and potential interest rate hikes. Investors are hoping for a rebound in fiscal year 2025, but analysts remain skeptical about a meaningful demand rebound.

Indian Tech Firms Struggle to Bounce Back After a Challenging Year

Leading Indian tech firms are bracing themselves for a difficult year as they seek to recover from what JPMorgan analysts have referred to as a “washout” year. The sector has been hit hard by challenges such as reduced tech spending, delayed projects, and even canceled contracts from clients primarily based in the United States. These clients have expressed concerns over slower economic growth and potential long-term interest rate hikes.

Investors are eagerly awaiting the upcoming second-quarter results and comments from Indian tech companies, hoping to see signs of a recovery in deal signings. However, analysts Ankur Rudra and Bhavik Mehta remain cautious. They state, “We remain negative on the sector as we haven’t seen a meaningful uptick in demand in our recent checks. We think the overall setup is not as positive as last quarter.”

The Indian tech sector has been grappling with the impact of reduced tech spending and delayed projects from US-based clients. This has led to concerns about the sector’s performance and potential for growth. However, investors have shifted their focus to fiscal year 2025, hoping for a rebound. This shift in focus has contributed to the Nifty IT index outperforming the broader Nifty 50 over the past three months.

As the upcoming quarterly earnings reports approach, deal signings and the distinction between new deals and renewals will be key areas of interest. Analysts will closely analyze these factors to assess the potential for growth in fiscal year 2025. However, despite these expectations, Rudra and Mehta’s recent discussions with industry executives did not reveal any meaningful optimism for a demand rebound. They note that while there may be some green shoots in certain areas, overall decision-making and deal ramp-ups remain sluggish.

JPMorgan’s outlook for large-cap tech companies in fiscal year 2025 suggests high single-digit earnings growth, which falls short of market expectations of double-digit growth. Similarly, mid-cap companies are expected to see low double-digit growth, compared to market expectations of mid-teens growth.

In conclusion, Indian tech firms are facing significant challenges as they aim to recover from a challenging year. The sector’s performance will be closely watched by investors, who are hoping for a rebound in fiscal year 2025. However, analysts remain skeptical about a meaningful demand rebound and note that overall decision-making and deal ramp-ups remain sluggish.