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IT sector is likely to face major headwinds

ICICIdirect Research 07 Apr 2025 DISCLAIMER

The Indian IT sector is likely to face headwinds due to potential client level budget cuts, amid reciprocal tariff, which would be inflationary as well as impact economic growth in US. Moreover, we also note that sourcing equipment’s may get expensive leading to reduction in large transformational projects, a key source of Indian IT firms.

We highlight that most companies in Q3 earnings had hinted at a better FY26 vs FY25, but with these recent developments, uncertainty has crept back in and the risk of earning cuts has increased. We expect another year of low to single digit growth in FY26, amid recession risks in the US rising and clients cutting back on non-essential spending.

Any real bounce-back in growth might only come in FY27. Nonetheless, we also believe that lot of these negatives are in the price with IT index down ~28% from the top.  Key monitorable would be the management commentary after Q4 earnings, which could set the tone for sector

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