Global uncertainty to weigh on Indian IT firms’ growth outlook

The global order is undergoing a major transition. With the Trump administration’s tariff policies, global supply chains have witnessed significant disruption. Alongside these trade measures, the US President’s aggressive posturing on incorporating Greenland into the United States has created fresh friction between Washington and key European Union members, as well as the UK. The US and the EU now appear to be on a collision course, and if tensions escalate, a trade war between the two blocs cannot be ruled out.

Adding to the unease, Canadian Prime Minister Mark Carney delivered striking remarks at the ongoing World Economic Forum in Davos. He observed that the old world order is on the brink of rupture, as the US withdraws from its traditional leadership role while increasingly leveraging its military and economic power against even its allies.

Against this backdrop, Indian multinational corporations will have to navigate an increasingly challenging environment. Indian IT companies, in particular, must tread cautiously in the coming quarters, as over 60 per cent of their revenues come from the US and Europe. Any friction between these two economic power centres does not augur well for the Indian IT industry.

If the situation worsens, enterprises will be forced to operate in a highly uncertain business environment. The US and European economies are deeply integrated. While the US leads in technology, Europe remains global financial hub. Any decoupling between these regions could prompt enterprises to reassess their technology spending. Business thrives on stability and predictability. When unpredictability and uncertainty prevails, companies tend to conserve cash and avoid large technology investments. Such scenario would weigh on the growth prospects of Indian IT firms.

Over the decades, Indian IT firms have established themselves as preferred technology partners of leading global companies. But the focus is mostly on the services side of the business. It means Indian IT firms help global enterprises to implement various technology stacks and maintain those. For this, they collaborate with platform providers to integrate solutions, while also tailoring them to clients’ specific business needs.

This positioning helps Indian IT companies to remain embedded in clients’ core technology operations, often referred to as the ‘run’ side of the business. In times of uncertainty, this segment remains resilient because it is mission-critical. As a result, the current phase of global instability is unlikely to disrupt a significant portion of Indian IT companies’ revenues in the near term.

However, when the times are uncertain, the big investment commitment in the field of AI is likely to be delayed. Therefore, growth recovery for Indian IT companies is not likely to be anytime soon. So, investors have to wait till the Indian IT companies come back to the growth path.