What’s going on here?
Global banks have resumed paused technology projects in 2023, giving a much-needed boost to India’s $254 billion IT sector, which is heavily dependent on banking, financial services and insurance (BFSI) customers.
What does this mean?
Quarterly reports from Indian IT giants Tata Consultancy Services (TCS), Infosys and Wipro show signs of recovery in demand for BFSI clients after a six-quarter hiatus due to the collapse of Silicon Valley Bank. According to TCS CFO, BFSI clients are likely to recover faster as they were the first to show restraint. Expected interest Interest rate cuts by central banks and the resolution of US election uncertainties are likely to boost customer confidence. In addition, heavyweights such as JPMorgan Chase and Bank of America have significantly increased their technology spending for 2024, indicating robust technology investments. This rebound is crucial as the top five US banks alone have increased their technology budgets by 6.8% year-on-year. Analysts believe an expected 50 basis point rate cut in September could ease cost pressures and encourage even greater technology investments.
Why should I care?
For markets: The silver lining on the horizon of Indian IT.
The renewed investment by US banks in the technology sector promises a ripple effect that could boost the entire Indian IT sector. A more favourable exchange rate of the rupee due to expected interest rate cuts will benefit margins for companies that bill in US dollars. Moreover, demand for engineering services, especially from the BFSI sector, often heralds a broader market recovery, suggesting that similar trends may soon emerge in other sectors as well.
The overall picture: Rely on future technologies.
BFSI companies are increasingly using technologies such as generative AI to improve customer experience and efficiency. The CEO of Mphasis points out that BFSI customers are shifting from cost-centric decisions to future benefits and aiming to be leaders in innovation. Constellation Research shows that BFSI companies convert 31% of their proof of concepts into projects, which is significantly higher than the average of 19% in other industries. However, Motilal Oswal Financial Services stresses that the specter of recession remains a cause for concern that could dampen this recovery.
