ICRA says Global macroecon headwinds likely to hit margins of IT companies

According to credit rating agency ICRA Ltd., the margins of Indian information technology services companies will continue to be exposed to macroeconomic headwinds in the US and Europe.

The agency stated in a release that unfavourable regulatory changes in these crucial markets could be another source of worry for the companies.

Because the US market accounts for 60–65% of Indian IT sector revenues and the European market for around a quarter of those revenues, margins are under pressure.

However, the rating agency believes wage cost inflation will begin to slow by the end of the current fiscal year.

The IT industry is grappling with a surge in employee attrition in recent times, led by the demand-supply gap, especially for digital technology talent.

ICRA Assistant Vice-President Deepak Jotwani said mortgage lending and the retail segments are expected to witness relatively higher moderation in growth compared to the manufacturing and healthcare segments, if the macroeconomic headwinds persist.

"While the current healthy order book position from clients will support healthy growth over the near term, the evolving macroeconomic situation is likely to result in lower order inflows going forward," Jotwani said.

The agency also cautioned that any stretch in the receivables cycle remains a key monitorable for select companies, apart from the impact of debt-funded inorganic investments.

Nonetheless, ICRA has maintained its stable outlook on the sector as it expects minimal impact on the credit profile of most of the industry players as their balance sheets remain strong.