Leading Indian IT firms Tata Consultancy Services and Infosys have the highest exposure to regional banks in the United States gripped by financial turmoil, analysts at JP Morgan said on Friday.
Regional banks in the United States account for 2-3 percent of its revenues, JP Morgan said in a note, adding that exposure to recently collapsed Silicon Valley Bank could be 10-20 basis points for TCS, Infosys and smaller competitor LTIMindtree. with the Tata Group Company at the helm.
All three companies may have to accrue provisions in the fourth quarter due to their exposure to SVB, JP Morgan said in a statement.
“The collapse of SVB, Signature Bank and liquidity concerns in the US and European Union may further dampen banks’ tech spending in the near term in a year of slowing bank tech budget growth,” said JP Morgan, which is “Underweight.” Rating on the sector said.
The Indian IT industry is already facing a challenging macro environment in its key markets of Europe and the United States, where technology spending is declining due to delays in decision-making on long-term deals as the pandemic-driven surge in demand slowed.
The banking crisis could delay the ramp-up of deals, impact revenue conversions over the next two quarters and delay new wins that could hurt revenue over the next four quarters, JP Morgan said.
Indian IT companies derive most of their revenue from the banking, financial services and insurance (BFSI) sector.
Within BFSI, their exposure to US banks averages 62 percent and Europe 23 percent, JP Morgan said.
LTIMindtree announced this week that it has negligible exposure to US regional banks, including SVB.
© Thomson Reuters 2023
