- JP Morgan Chase & Co JPM analysts said that soaring inflation, supply chain issues, and the Ukraine war would bring an end to the growth boom India's IT services industry enjoyed during the pandemic.
- The analysts downgraded the sector to "Underweight."
- They downgraded Tata Consultancy Services Ltd, India's top IT exporter, to an "Underweight" rating from "Neutral" but stayed "Overweight" on rival Infosys Limited INFY.
- JPM expected the slowdown to worsen in 2023 partly due to a potential decline in orders from the fundamental market of the U.S., whose economic growth had started to weaken.
- While industry margins were likely to narrow due to a talent war that has pushed up costs of hiring and retaining employees, Infosys' margin reset is early. It gives it the bandwidth to invest and maintain growth.
- JPM saw the peak revenue growth behind them and EBIT margins trending down from inflation, implying reversion.
- While the bottom-up outlook remained positive from most Services, Software, and SaaS names YTD, and the tech spending cycle remained buoyant structurally, JPM felt more downside risks to current earnings assumptions.
- The $194 billion sector whose software services helped businesses adopt pandemic-era online shopping practices and remote working is facing a demand slowdown this year as employees join back offices and the Ukraine war weighs on spending from clients in Europe.
- Price Action: INFY shares closed lower by 0.43% at $18.70 on the last check Thursday.
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