- 19 Dec 2024
- ICICI Securities
IMPACT OF FED RATE CUT ON INDIAN IT SECTOR : MODERATION IN RATE CUT OUTLOOK TO RESTRICT DISCRETIONARY RECOVERY PACE
News: The US Federal Reserve has cut its key interest rate by 0.25%, signaling a slower pace of rate cuts moving forward. The Fed projects an average of two rate cuts in 2025, down from the earlier estimate of four, citing persistently "somewhat elevated" consumer prices in the US economy.
Views: For the Indian IT services sector, which derives over 60% of its revenue from the US, the Fed's cautious stance has mixed implications. While a weaker rupee generally boosts export revenues, a weakening US dollar can dampen future revenue visibility, particularly for discretionary spend-based engagements. Although the recent 25 bps rate cut is expected to aid recovery in discretionary spending, the Fed's cautious approach suggests that this recovery will be slower, potentially delaying a more robust revival in IT spending.
Impact: Negative