Will Indian IT see the Impact of the US Recession?

Nirmala Sitharaman, the Union finance minister, spoke to the Parliament earlier this week to stop a discussion over pricing increases. The minister stated that there was "no question" of India going into recession or stagflation, which helped to calm speculation about the looming US economic slump.

In a nearly two-hour-long Rajya Sabha session, Sitharaman referred to the macroeconomic foundations of the nation as "excellent." Sitharaman acknowledged the existence of inflationary pressure and stated that initiatives were being taken to keep retail inflation at or below 7%.

Sitharaman's analysis was based on a poll conducted by Bloomberg economists. With the exception of Sri Lanka, which is directly in the thick of political unrest, the report emphasized that most Asian economies would be protected from the impending recession.

It increased the likelihood that the economies of nations like Taiwan, Australia, New Zealand, Australia, and the Philippines would experience a recession. However, the forecast for the Indian economy was zero.

Now the main question is recession coming in India? and if yes, then what will be the impacts of it?

Declining margins, Higher costs

Despite fears of a recession, the IT sector has outperformed. In their first quarter, Infosys raised their revenue forecast by 14-16%. This forecast was even higher than the previous estimate of 13-15%.In his second-half-of-the-year forecast, Salil Parekh said there was a solid pipeline of deals.

There have been minor but definite indications of a slowdown, though. There is too much interdependence between Indian IT and the US economy for either to be impacted by the other. The largest Indian IT companies, including TCS, Infosys, Wipro, HCL Technologies, and Tech Mahindra, have 50% exposure to the US economy; 40–78% of their revenue comes from the US.

A spillover effect

Yes, there is a risk that the recession would have an effect on the Indian IT industry, according to Pareekh Jain of the research firm EIIRTrend. Businesses are dealing with two blows at once. Prices for energy and commodities have increased, but inflation has caused their demand to fall.

This may result in a decline in discretionary IT spending among some clients. Moreover, new contracts could be delayed as a result. This will affect fresh orders.

According to Jain, the impact of a recession can be felt for a brief period, followed by a boom in Indian IT because the country's value proposition for IT talent at scale is still strong.

Slow global funding

As a result of the global recession, less capital is being invested in startups. The second quarter saw a 33 percent drop in startup funding in the Indian market as compared to the first quarter, according to a survey by Tracxn Technologies.

As a result of the turmoil in the financial markets, international investors like Sequoia Capital are withdrawing their funds.

As a result, fewer firms reached the unicorn designation, with only four unicorns appearing in the second quarter.

Lower forecast in hiring

Leading recruiters throughout the nation have sounded the alarm about a slowdown in recruiting for the technology sector in the future quarters. According to Vidya Sagar Gannamani, head of the recruiting business Adecco India, "We are predicting a slowdown in tech hiring in India in the coming quarters due to global macroeconomic issues including geopolitical instability and predicted economic slowdown in several regions."

Although the storm may not be as severe as the financial crisis of 2008, and the US and India are not sailing together this time, it is likely that we will also feel its effects.

Hye my name is Anubhav. Thanks for your support