Business Standard

Volume IconIs India Inc seeing the impact of a looming US recession?

Impending recession in the US is reflecting in its domestic consumption. Indian exporters are already seeing a dip in new orders, while IT sector margins are declining. Should the exporters worry?

IT industry

The old adage goes that when the US sneezes, the world catches a cold. And this time, the country caught Covid-19. Notwithstanding repeated attempts by its central bank, the likelihood of the world’s biggest economy slipping into a recession within the next 12 months has shot up to nearly 50%, from 30% in June, economists in a Bloomberg poll predicted earlier this month. 

The US is India’s biggest export destination. And growing fears of a recession in the US is keeping Indian exporters on the edge, as a slowdown in demand affects export growth negatively here. 
 
In the first two months of this financial year, India exported goods worth $14.3 billion to the US, making up 18.2% of the total exports.

Farida Group, one of India’s biggest leather and leather footwear exporters, says it has started to see a dip in volume for new export orders from its American clients for the 2023 summer and winter seasons, with a much sharper decline for winter orders. The group gets 45-50% of its business from the US. It is not expecting a slowdown in the short term although the group has seen few order cancellations.

Things however seem to be worse for ready-made garment exporters who have already started to see a slowdown in orders.  

Rafeeque Ahmed, Chairman, Farida Group says new orders for summer 2023 seeing 15% dip in volumes. Clients cutting orders for winter 2023 by 20-25%. Garment industry is also facing similar situation, he says. 

But things are not as gloomy on the IT services side despite the top four exporters missing their first-quarter profit estimates. TCS, HCL, Wipro and Infosys also reported a decline in margins amid an increase in employee costs to tackle high attrition levels. But they are seeing a strong deal pipeline. 

Citing a strong demand outlook, Infosys on Sunday raised its full-year revenue growth guidance to 14-16%. CEO Salil Parekh acknowledged that there have been discussions on recession and interest rates going up and that he sees pressure of this on some segments like mortgage businesses within the financial services sector.

Wipro CEO Thierry Delaporte recently said there has been no slowdown or pullback in IT spending by the company’s clients.  TCS CEO Rajesh Gopinath too says he expects the demand environment to likely stay very robust. 

DD Mishra, Senior Director Analyst, Gartner says, recession won’t impact IT in short or medium term but IT spending situation may change any time. Recession not a very big concern for IT firms and clients, he says. 

With the IT spending plans of their clients intact, the management of Indian IT majors have provided positive commentary on the near-term demand scenario. Yet they remain cautiously optimistic. On the other hand, Indian exporters of consumer items will be hit hard as households in the US cut their spending. There may still be a silver lining. Even if the US does fall into a recession, it is likely to be a mild one.

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First Published: Jul 26 2022 | 7:00 AM IST