The collapse of the Silicon Valley Bank has added to the uncertainty faced by Indian IT companies, which were already facing headwinds due to the macroeconomic slowdown in the West. This collapse will slow down new builds, cause cost pressure, and further delay the onboarding of new employees in the IT sector, says Vineet Nayar, former CEO of HCL Technologies.
Nayar, who is also the founder of Sampark Foundation, told Business Today, “What happens next is difficult to predict; however, we can look back at 2008 and understand three likely impacts we would see on Indian IT companies.”
“Firstly, the uncertain environment impacts new projects; thus, we would see a slowdown in new builds,” he said.
A report by Wedbush Securities echoed these views and stressed that deals from the Banking, Financial Services, and Insurance (BFSI) and 'High Tech' sectors might slow down in light of the collapse. The BFSI sector contributes up to 40 per cent to the Indian IT sector’s revenues.
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Secondly, Nayar believes that the collapse will put cost pressure on the IT sector.
He said, “Second, it puts cost pressure; thus, we will see increased outsourcing and further negotiations for existing contracts.”
The third direct impact that the former HCL Tech CEO foresees is the use of AI tools to cushion the impact on margins.
“Lastly, it will force Indian IT to increase the deployment of AI tools to ensure this headwind does not impact margins,” the founder of Sampark Foundation said.
The Indian IT sector is already facing pressure on margins due to the ongoing global macroeconomic slowdown and recessionary fears.
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Nayar also believes that this will create human resource issues for the sector with further delay in onboarding and lower investment in the skilling of employees.
“The impact on employees will be high in the form of delayed joining, low investment in new skill building and fewer opportunities for global projects,” he said.
Similar trends were observed in the aftermath of the 2008 financial crisis. 43 per cent of Western companies had to cut back their IT spending due to the global financial meltdown as per a report by Forrester, a market research firm.
Moreover, the US economy witnessed 70 per cent US firms renegotiating contracts as per the Forrester report.
But despite the short-term difficulties, Nayar is bullish on the sector in the medium term.
“However, it is a pain that will last for a limited time. In the medium term, the IT sector is headed only one way, up and up,” he concluded.
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