A global rout sparked by investors’ pessimism about the US economy has pulled down Indian technology companies, too.
The Nifty IT, a key Indian stock market index for the information-technology space, is ending 2022 down 24% from the previous year, its worst fall since the 2008 global financial crisis. This decline comes after five straight years of annual gains.
Tech majors such as Wipro, Tech Mahindra, and Mphasis have lost more than 40% of their market value in 2022. Hundreds of employees of both startups and bellwether companies have been laid off. Venture capitalist funding has dwindled.
While the Indian economy itself has been resilient in a shaky global environment, its tech industry’s weak stretch may continue into 2023.
Why are Indian tech stocks falling?
Fears of a recession, stoked by rising interest rates in developed markets, have hit the revenues, sales, and growth prospects of many global tech firms. A major share of Indian tech firms’ earnings comes from global clients.
This sell-off only intensified after Goldman Sachsin September, downgraded Mumbai-based Tata Consultancy Services (TCS) and Bengaluru’s Infosys to “sell” from “buy,” citing a potential slowdown in revenue growth.
Meanwhile, HCL TechnologiesIndia’s third-largest IT company by revenue, has also lowered its revenue growth projection for 2023.
“Some of the macros like furloughs [in the US] and a drop in discretionary spending in tech, telecom, and other verticals are a little bit more than what we expected at the beginning of the quarter,” C Vijayakumar, CEO and managing director of HCL Technologies, said last week at its Investor Day event in New York.
The funding winter is here to stay
India’s new-age tech startups are in soup, too.
With stunted growth plans and hundreds of layoffs in recent months, companies such as SnapdealPharmEasy, MobiKwik, and Droom have had to even shelve their listing plans.
There has been a significant slowdown in venture capital fundingtoo, according to the Wall Street Journal. In 2022 so far, startups in the country have raised only $25.5 billion, according to Tracxn Technologies data sourced by the business news daily. In comparison, last year’s figure stood at $41.3 billion.
In 2021, tech startups such as Zomato, Paytm, Nykaa had launched their initial public offerings. The dismal listing for a few notwithstanding, the funds raised back then have helped many of them course through 2022, WSJ reported. But, 2023 could be tough, especially for newer startups.
Those in the later stages of funding are more vulnerable, the business daily said.
What to look for in 2023?
An aggressive rate hike cycle in the US and a subsequent weakening of the labor market could cloud Indian IT’s prospects for 2023.
The US Federal Reserve chairman Jerome Powell said on Wednesday (Dec. 14) that he will not shy away from increasing interest rates further in 2023, even if the economy slips into recession.
This could force tech companies into restructuring or push them into bankruptcy, wage cuts, and even executive departures and layoffs. For this reason, Jefferies expects India’s IT revenue growth to moderate by 250 basis points to around 7% in 2023.
During the pandemic, a surge in startups fueled the expansion of the Indian tech industry. It may be time for a correction now.
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