What Trump's return means for India's $245 billion tech sector
What's the story
Indian Information Technology (IT) firms are emerging as hot investment picks, thanks to their expected gains from the 'Trump Trade.'
The term refers to market moves based on the policies of US President-elect Donald Trump.
Experts believe these companies will benefit from higher deal values in the US manufacturing and Banking, Financial Services and Insurance (BFSI) sectors, owing to favorable tax policies under Trump.
Market dynamics
Indian IT stocks: A safe haven for investors
Amid disappointing earnings and foreign investor-driven selling in the broader market, Indian IT stocks are emerging as a favorite among many market experts.
The US manufacturing and BFSI sector are expected to see an extension of corporate tax cuts, set to expire in 2025.
This could lead to increased spending on IT services, benefiting Indian tech firms operating in the US.
Currency impact
Indian IT firms to benefit from US currency dynamics
Market expert Sunil Subramaniam has pointed out that currency dynamics and US sectoral growth are interlinked, benefiting IT companies.
He said, "IT still remains my number one Trump Trade pick."
The strength of the US dollar against rupee increases profitability for Indian IT firms, as a large part of their revenue comes from exports.
Visa concerns
Subramaniam downplays H-1B visa concerns
Subramaniam has downplayed concerns over tighter immigration policies under Trump's administration, especially H-1B visas.
He argued that these visas mainly impact onshore work, which is only a small part of IT operations.
He further noted that alternative models like near-shoring and offshoring have effectively mitigated this risk in the past.
"An Indian engineer working in the US on an H-1B visa is more expensive than someone working offshore in India," he added.
Growth prospects
Indian IT firms well-positioned for growth
Despite the potential disruption of immigration policies, Subramaniam believes that the real impact on business fundamentals of IT companies is not as big as it seems.
He said, "For US corporations focused on profitability, outsourcing will remain essential."
This means that Indian IT firms are in a good position to leverage new opportunities in the US market.
Sector performance
Large-cap IT firms expected to perform well
Kunal Shah of Carnelian Capital has shared his insights on valuations across the IT space.
He said, "Large-cap IT should continue to perform well, benefiting from BFSI spending and US interest rate trajectory."
Shah also sees potential in midcap firms undergoing CEO transitions, which could unlock substantial value if new leadership delivers on performance.