Indian IT faces difficult times ahead as Gartner cuts growth forecast

MUMBAI: After delivering an upbeat growth forecast for IT services in 2013 three months ago, Gartner seems to have toned down its expectations a bit. The global technology research firm on Thursday said worldwide spending on IT services is likely to grow by 4.5% in the current calendar year.

While this is still far higher than the anticipated increase of 1.5% last year, its latest estimate is 70 basis points lower than what it had predicted three months ago. In January, it had guided for 5.2% growth for the current fiscal.

Gartner has reduced its forecast citing continued hesitation among global clients and cost pressure on vendors. "Although the United States did avoid the fiscal cliff, the subsequent sequestration, compounded by the rise of Cyprus' debt burden, seems to have netted out any benefit, and the fragile business and consumer sentiment throughout much of the world continues," Gartner's managing vice president Richard Gordon said in a press release.

The research house also reduced the growth forecast for data centre systems by 80 basis points to 3.7% and that for telecom services by 40 basis points to 2%.

The downward revision especially for the IT services segment highlights difficulties for the Indian software services exporters such as top tier players including TCS, Infosys, Wipro, and HCL Technologies and other medium and small companies such as Hexaware Technologies, NIIT Technologies, and KPIT Cummins India.

In the past three months, IT stocks have earned relatively better returns as investors are betting big on the future growth prospects of these companies in the hope of a turnaround in the US market. The ET Infotech index has gained 19% in three months. Each of the top five IT stocks are trading near their 52-week highs.

The momentum in these stocks, however, may dampen in the near term given clouded outlook of the sector. In addition, growth in the March quarter is expected to be muted for IT companies due to seasonal weakness as clients take time to decide IT budgets. Investors need to wait for a clear sign of growth before making fresh investments.

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