Morgan Stanley Expects Global Slowdown In Financial Sector To Impact IT Firms
Morgan Stanley’s Parag Gupta expects margin pressure to persist for India Inc. in the ongoing year.
The global slowdown witnessed in the banking, financial services and insurance space is likely to impact the growth trajectory of India’s information technology sector, according to Morgan Stanley’s India Technology, Media and Telecom Analyst Parag Gupta.
“The volatility issues in the capital markets and banking space in the U.S., along with the caution coming in from the BFSI segment in India, could soften spending in the IT sector,” Gupta told BloombergQuint.
Gupta expects mid-cap vendors in the IT space to grow faster than large-cap players. “In the next twelve months, mid-cap vendors could potentially grow revenue of about 10.5 percent year-on-year, while large-cap vendors are likely to see revenue growth of about 9-9.5 percent,” he said, adding that the delta would not be significant. Gupta said large-cap players will be favored in the market due to high valuations of mid-cap stocks.
He, however, expects margin pressure to persist in the ongoing year due to appreciating rupee and wage inflation caused by tightness in the labour market and high attrition rates in India. “If revenue growth fails to surprise on the upside to the expectations, margins will likely disappoint,” Gupta said. “Margin pressure in our view is the real challenge and investors should take cognizance of it.”
Telecom Sector
- Expects prices to be maintained at current levels as players are looking to improve market share on subscriber front and improving networks.
- Companies’ near-term focus to remain on raising fresh equity, monetising assets and bringing down overall leverage ratios.
- Companies are making significant efforts in deleveraging.
- Data explosion is here to stay.
- New tariff order is going to have a limited impact.
- Expects television advertising to grow at a slower pace of low double-digits in FY20.