Trump tariffs could delay revenue recovery of Indian IT by a quarter, cautioned Baroda BNP Paribas Mutual Fund, a joint venture between Bank of Baroda and BNP Paribas Asset Management, on Tuesday.
Pratish Krishnan, Fund Manager & Senior Analyst at Baroda BNP Paribas Mutual Fund said, President Donald Trump’s reciprocal tariff has raised concerns about inflation and slowdown in the U.S. economy. Consequently, there could be delays in firming up IT budgets or spending by U.S. corporates. Hence, revenue recovery could be delayed by a quarter or so, he warned.
However, Mr. Krishnan added that not all was lost for the sector. Unlike previous crises such as the global financial crisis or COVID-19, U.S. GDP is likely to see a slower growth vs. decline reported in those years.
Quoting Bloomberg, he said, as per U.S. Fed, GDP was likely to grow at 1.7% during CY25 which was a fall from 2.1% (estimated) but much better than 2.2% degrowth reported during CY2020. Europe, too, was seeing recovery led by higher investments and an increase in consumption which would help Indian IT firms.
Given tariffs were likely to impact manufacturing activity, banking and financial services which have a large exposure to Indian IT services companies could be resilient in these tough times, he opined.
‘’Finally we are in the midst of a technological investment cycle led by shift to cloud and adoption of Artificial Intelligence (AI). AI spending is likely to be mainstream in the next 2-3 years hich could drive demand for IT services companies,’‘ he said.
Post recent correction, valuations were now in line with five-year averages and FCF (free cash flow) yields have turned healthy for the sector. While sector valuations, post recent corrections have turned attractive, concerns on U.S. macro need to recede to be constructive on the sector, Mr. Krishnan further said.
Published – April 08, 2025 07:48 pm IST
