Samvat 2081: Over the past year, the Indian IT sector has demonstrated impressive resilience. Despite concerns about slowing demand and high interest rates in major markets, the Clever IT The index has jumped 36 percent since last Diwali, surpassing the Pretty 50s 25 percent and proving that tech stocks still have a head start in the race.

The road ahead for the sector is not without its challenges, but experts remain optimistic about its medium- and long-term prospects. As the US has entered a cycle of rate cuts, it emphasizes that greater policy clarity is expected after the US elections 2024– a result likely to bode well for the sector.

The US presidential election is important for the global economy and markets. The policies and strategic decisions of the world’s most powerful and largest economy are bound to have an effect on global trade.

The US elections hold particular significance for the Indian IT sector, given that the US is a crucial market for Indian IT service providers. H-1B visa policies and possible tax hikes on companies that outsource work are among the key factors that could shape the sector’s future prospects.

Mint spoke to five industry experts to gather their views on the IT sector’s outlook at Samvat 2081 and the potential impact of the upcoming US elections on the sector. Here’s what they said:

Deepak Jasani, Head of Retail Research, HDFC Securities

IT companies reported decent numbers in Q2FY25, and their comments suggest a gradual recovery in H2FY25.

Investors are weighing the potential effects on the IT sector of the 2024 U.S. presidential election, which takes place next week.

Indian IT companies are largely dependent on the American economy and businesses and generate more than half of their revenues in the United States.

Strict work visa policies, anti-immigration policies, employment and hiring policies and guidelines related to the use of contractors, as well as the creation of additional delivery centers nearby ribs could impact the stock prices of Indian IT companies.

“During Trump’s last reign, Indian IT companies were the first victims and suffered. The fear of the current times is also similar, although it is possible that Trump will not follow his previous policies in full,” Jasani said.

Sandeep Gogia, Managing Director – Investment Banking, Equirus

The result is mixed, with Infosys, HCL Tech and LTIMindtree leading the pack while TCS and Wipro lag behind in terms of quarter-on-quarter constant currency sales growth.

Overall, there is a common voice: there are signs of emergence in discretionary spending, notably within BFSI in the US, and some companies are also indicating some recovery in spending in the technology sector.

There are also early signs of recovery in smaller deal pipelines (which generally tend to be discretionary in nature).

Furthermore, management’s comments remain cautious, given geopolitical issues and the impending elections in the United States.

The Street expects growth to pick up in FY26E compared to FY25E, which cannot be ruled out since the rate cut cycle in the US and Europe has already started.

This may trigger discretionary spending beyond BFSI in interest rate sensitive sectors unless the US experiences a deep recession contrary to expectations of a soft landing.

Generally speaking, the US election period makes investors cautious, given the rhetoric around global supply from the US during election times.

Kunal Shah, Senior Research Analyst, Carnelian Asset Management & Advisors

The IT sector is one of the sectors best positioned to participate in the declining interest rate cycle in the United States. The demand for BFSI has already seen an uptick, and other sectors are expected to gradually follow suit.

“After several quarters, we are also seeing an increase in headcount, all of which bodes well for companies in the sector,” Shah said.

“Companies in the sector have seen good momentum in recent months and some consolidation could occur. Furthermore, margins will be under pressure in the next quarter, as higher wages will follow. However, from a two to three year perspective, the sector looks set to do well,” Shah said.

Saurabh Patwa, Head of Research and Portfolio Manager, Quest Investment Advisors

So far, the IT sector’s results have been broadly in line with expectations. In the US, the BFSI sector is showing signs of recovery, with volumes up slightly and discretionary spending gradually improving.

However, in Europe, particularly in the automotive and manufacturing segments, headwinds persist, weighing on the performance of certain players.

Companies are navigating a challenging macroeconomic environment, with demand stabilizing across key verticals. Some positive signals suggest a stronger recovery in the IT sector in the coming quarters.

The recovery in financial services and broad-based growth expected in the second quarter of FY25 is expected to lead to improved performance in the second half of FY25 and beyond.

The strong results from major US banks are encouraging, indicating a potential pass-through effect that could benefit Indian IT services as we move forward.

Although the sector could face margin pressures due to seasonal factors such as holidays, wage hikes and the falling interest rate cycle, it is likely to increase discretionary spending, boosting thus the IT demand.

“Historically, U.S. elections have had little to no impact on the IT spending habits of U.S. businesses, so the election cycle is not expected to significantly alter the trajectory of the industry. Overall, the outlook remains cautiously optimistic for Indian IT, driven by sectoral recovery and stable demand,” Patwa said.

Sagar Shetty, Research Analyst, StoxBox

The IT sector looks promising as we enter the new Samvat, especially with the optimistic demand outlook fueled by rate cuts.

The conclusion of the US elections will likely clarify policy direction, boost investor confidence and stabilize the market.

Potential policy changes after the election could likely attract new opportunities for businesses, including favorable trade deals and regulatory changes.

Such a positive outlook, driven by investor confidence and improving investment, will further strengthen the positive sentiment in the sector. As we approach the end of the calendar year, we expect the pace of transaction execution to improve as demand stabilizes.

“We believe that Tier 1 companies are likely to be the biggest beneficiaries of this demand disruption due to the comprehensive product offerings they can offer,” Shetty said.

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Disclaimer: The above views and recommendations are those of individual analysts, experts and brokerage firms, and not of Mint. We advise investors to consult certified experts before making any investment decisions.