ndia’s NIFTY IT index that captures the performance of the Information technology segment of the market tested record highs during the month of September, accelerating above 42k mark for the first time ever. Domestic IT firms have seen large scaled gains in last few months. The NIFTY IT index gained 4.74% in August 2024, adding to gains of around 13% and 12% in July and June 2024 respectively. The month however witnessed a sharp slide below record high levels reflecting a combination of profit selling and cautiousness of the US Federal Reserve monetary policy decision.
AI investments to drive developing Asia growth, says ADB
Surging global investments in artificial intelligence and easing inflation give developing Asia a launch pad for sustained economic growth in 2024 and 2025, the Asian Development Bank said in its latest update. With goods exports jumping 8.0% in July, the Manila-based lender slightly raised its 2024 economic growth forecast for the region to 5.0% this year, up from 4.9% projected in April. It kept its 2025 forecast unchanged at 4.9%. Growth in developing Asia remained robust during the first half of 2024, as domestic demand and the continued recovery in exports supported economies in the region. High-income technology exporters benefited as global sales of semiconductors rose amid strong demand for artificial intelligence products, the bank noted. Exports will play a significant role in driving growth, with technology exporters benefiting the most, particularly from semiconductor exports, fueled by a surge in demand for AI processing and cloud computing applications.
In its Asian Development Outlook (ADO) update of September, the ADB said India’s GDP growth is expected at 7.0% in fiscal year 2024 (FY2024, ending 31 March 2025) and 7.2% in FY2025, both as forecast in ADO April 2024. While GDP growth slowed to 6.7% year on year in the first quarter of FY2024, it is expected to accelerate in the coming quarters with improvement in agriculture and a largely robust outlook for industry and services, the report stated. Exports in FY2024 will be higher than earlier projected, led by larger services exports, particularly in IT and professional services. Growth in merchandise exports will be relatively muted in FY2024 and FY2025, though some segments, notably electronics, may experience faster growth, ADB noted.
Private consumption is expected to improve, driven by rural consumption fueled by stronger agriculture and by already robust urban consumption. The outlook for private investment is upbeat, but growth in public capital expenditure, heretofore high, will moderate in FY2025. Efforts toward fiscal consolidation are expected to drive down the fiscal deficit to a level last seen before COVID-19, reflecting robust revenue collection and restrained current expenditure. A recent policy announcement offering workers and firms employment-linked incentives could boost labor demand and bolster job creation starting in FY2025, the Asian Development Bank (ADB) said.
US FDIC proposes strengthened rules for banks working with fintechs
The Bull-run in IT stocks were dampened after some critical regulatory developments on the US banking front. The US Federal Deposit Insurance Corporation (FDIC) proposed a significant rule that compels banks to maintain detailed records of fintech customers' data. This initiative follows the collapse of tech firm Synapse, which kept a swath of users locked out of their accounts. The latest FDIC proposal aims to prevent a repeat of such a situation by ensuring banks, rather than fintech companies, keep track of ownership records and account balances. The FDIC's rule primarily targets the type of pooled accounts often used by fintech apps which makes fintech provider or a third party responsible for maintaining ledgers of account data. The new proposed rule is likely to address this by making banks responsible for maintaining the records of fintech customers. FDIC has noted that enhanced record-keeping would also make it easier for bankruptcy courts to determine payouts in cases like Synapse. The FDIC has noted that better records would allow them to pay depositors more quickly in case of a bank failure. This would in turn shift the burden of record-keeping from fintech firms to their banking partners, who are already FDIC-insured and more closely regulated.
While this proposal may not affect domestic IT firms as of now, it is a critical reform for the US banking sector on the whole. It also means that Fintech companies could face increased scrutiny in their relationships with traditional banks. Along with this, the FDIC also issued a statement yesterday on its policy toward bank mergers. This new stance promises to heighten scrutiny for mergers that would result in banks with assets exceeding $100 billion. Bank mergers will face tougher scrutiny. The FDIC approved a measure requiring more details from banks seeking to merge and clarifying that the FDIC may consider concentrations beyond deposits, including small business and residential loan originations, when evaluating a merger’s competitive effects. Under its previous rule, the FDIC assessed competition by looking at the geography of where customers make bank deposits. These changes could make regulatory landscape challenging for US banking space which conventionally forms a significant proportion of clientele for Indian IT services firms.
India Leads In AI Talent: Nasscom chief
India leads on world AI stage in talent and domain skills, placing it on a strong footing in transformative era of Artificial Intelligence, Nasscom's new chairperson Sindhu Gangadharan has said, asserting this is "the best time to be in India" particularly for those in the technology sector. Gangadharan also spoke about India's growing clout as "GCC capital of the world", the nation's proven strengths in AI skills and talent, and emphasised she is "optimistic and bullish" about the future of the Indian tech industry.
Meanwhile, according to NASCOM September quarterly industry review, global GDP is estimated to increase by 3.2% in 2024 (same as April estimates) and 3.3% projected in 2025 (increase of 0.1% from April estimates). Worldwide software and IT services spending expected to witness a y-o-y increase of 9.2% in 2024, lower as compared with their previous projections of 11.4% (as of April 2024).
As per the Indian Technology Industry Performance, revenues grew 1.3% q-o-q, and 2.3% y-o-y in reported currency. North America (+1.1%), India (+14.2%) grew sequentially, EMEA remained stable, while Rest of the world (-0.5%) witnessed a q-o-q decline. Sequential revenue growth for BFSI, Healthcare, Retail, Telecom, and Energy & Utilities vertical. While Manufacturing, and Transportation, Travel and hospitality verticals declined sequentially. The employee base increased by 0.8% q-o-q in Q1FY25after dropping for five consecutive quarters.
Among global technology companies trends, revenues for the select set of global companies increased by 1.5% q-o-q anddeclined1.4% y-o-y. The employee count increased in Q1FY25. For start-up trends, revenues declined by 1.2% q-o-q and increased 23.1% y-o-y.
Outlook:
India’s NIFTY IT index that captures the performance of the IT segment of the market made a good rebound since June this year and has scaled up lifetime highs above 43k mark during the period. The NIFTY IT sector has managed to rebound by a good 22% so far in 2024 after registering a 25% growth during 2023. Meanwhile, large banks are likely to spend more on technology as lower interest rate is likely to boost their earnings through higher lending activities. The US Federal Reserve has initiated a new monetary easing cycle with a 50 basis points (bps) cut to the federal funds rate, marking the first reduction since March 2020. This follows a 14-month policy pause, bringing the current federal funds rate between 4.75 percent and 5.00 percent.
Meanwhile, global IT giant Accenture announced its quarterly earnings and FY25 guidance. Indian IT companies including all bluechips, largecaps and midcap stocks shall remain in focus after Accenture's earnings and ahead of India's Q2 earnings coming in from October 10, 2024. Also, the falling interest rates shall also support the stock prices for the IT counters. Accenture delivered in-line Q4FY24 results. Revenue at $16.4 billion grew 2.6 per cent YoY/5 per cent Constant Currency YoY, in line with Street’s estimate. Outsourcing services expanded 4.6 per cent YoY with consulting finally returning to growth. Overall bookings grew a solid 21.1 per cent YoY to $20.1 billion with Outsourcing bookings at $11.6 billion, surging 41.5 per cent YoY. Accenture's business outlook for the full 2025 fiscal year assumes that the foreign-exchange impact on its results in U.S. dollars will be approximately positive 1.5% compared with fiscal 2024. For fiscal 2025, the company expects revenue growth to be in the range of 3% to 6% in local currency.
Graph: Contribution to gross domestic product
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