The impact of the collapse of Silicon Valley Bank and Signature Bank in the United States has shaken the stock markets and the economies across the globe. It has also sparked fears that a similar fallout can be expected in India. While it can be seen that the banks are well insulated from these shocks, the same can not be said for the IT majors as they are not in the position to derive their revenues from overseas markets like US and European markets.
According to JP Morgan's report that was released on Friday, TCS and Infosys have the highest exposure to the banks. Even the company's smaller rivals LTIMindtree have been impacted by the SVB crisis.
TCS, Infosys, LTIMindtree exposure
JP Morgan in the note said that the regional banks in the US account for 2-3 per cent of their revenue. They also added that the exposure of TCS, Infosys, LTIMindtree and Tata group companies are in the lead with 10-20 basis points exposure. According to the note TCS has the highest global banking exposure at 38 per cent, LTIMindtree is the second with 37 per cent while Wipro stands at 35 per cent.
All three companies will need to set aside provisions in the fourth quarter to cover their exposure to SVB , said JP Morgan.
For the Indian IT companies there are two ways of impact one is delays in deal closures which will hit the revenue conversions in the next 3 to 4 quarters and delays in ramp-ups with a push back on new orders which will impact revenue conversions in the next two quarters.
Further the fear due the collapse of the banks and liquidity across countries like US and Europe could soften tech spending by the banks over the short term. This in addition to the fading of the pandemic-led surge.
JP Morgan said, "Indian IT firms draw the bulk of their revenue from the banking, financial services, and insurance (BFSI) sector. Within BFSI, their exposure to U.S. banks is on average 62% and Europe 23%."