IT majors at risk! TCS, Infosys have highest exposure to US regional banks, says JPMorgan

Amid financial turmoil in US, top Indian IT firms like Tata Consultancy Services Ltd and Infosys have the highest exposure to regional banks in the country, analysts at JPMorgan said on Friday.

Regional banks in the United States account for 2-3% of their revenue, JPMorgan said in a note, adding that the exposure to the recently collapsed Silicon Valley Bank could be 10-20 basis points for TCS, Infosys and smaller rival LTIMindtree, with the Tata Group company in the lead.

All three companies might need to set aside provisions in the fourth quarter due to their exposure to SVB, JPMorgan said in a note.

"The collapse of SVB, Signature Bank and concerns of liquidity across US and the European Union can further soften tech spends by banks over the short term in a year with slowing growth in bank tech budgets," JPMorgan, which has an "underweight" rating on the sector, said.

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A $30-billion lifeline for First Republic Bank hosed down market fears about an imminent banking collapse on Friday.

Large US banks injected the funds into the San Francisco-based bank on Thursday, swooping in to rescue the lender caught up in a widening crisis triggered by the collapse of two other mid-size US lenders over the past week.

US Treasury Secretary Janet Yellen said the US banking system remains sound and Americans can feel confident that their deposits are safe.

India's IT industry is already facing a challenging macroeconomic environment in its key markets of Europe and the United States, where technology spending is contracting amid delays in decision-making on long-term deals as the pandemic-led surge in demand faded.

The banking crisis could delay deal ramp-ups, impacting revenue conversions over the next two quarters, and push back new order closures that could hurt revenue over the next four quarters, JPMorgan said.

Indian IT firms draw the bulk of their revenue from the banking, financial services and insurance (BFSI) sector.

Within BFSI, their exposure to the US banks is on average 62% and Europe 23%, JPMorgan said.

LTIMindtree this week said it had negligible exposure to US regional banks, including SVB.

With inputs from Reuters