AI-positive? How Trump may grow India’s IT business

What do market movements indicate?

In recent weeks, the stock markets have been volatile, and showed bearish trends. However, IT stocks were resilient, with the Nifty IT index up 32% on 29 November from a year ago. The November rally started after Donald Trump’s win in the 2024 US presidential election. The market anticipates that his proposed policies will be favourable for the IT services business. The expected proposals include corporate tax cuts, sparking optimism about increased discretionary spending by US companies—a key market for IT services providers, which get 60–70% of their earnings from the US market.

Will a weaker rupee impact IT services?

A weaker rupee vis-à-vis the US dollar will boost exports (even as it makes imports dearer), giving a leg-up to the IT services businesses in India. In the past six months, the rupee has declined by 1.7% versus the dollar. A decline in the rupee enhances earnings of IT services exporters, as about 70% of their revenue comes from the US. For every 100 basis point (bp) change in the rupee-dollar exchange rate, the margins and net profit of IT services companies are impacted positively. While currency depreciation will make exports more competitive, a lot depends on demand and related trade policies as well.

Is discretionary spending back in the US market?

Interest rate cuts of 50 and 25 bps by the US Fed in September and November are likely to increase spending in the banking, financial services and insurance segment. It accounts for around 35% of the $260 billion business for IT services firms. The rate cut also changes business sentiment and could result in higher discretionary spend by global clients.

Will Trump’s AI stance help Indian IT firms?

Donald Trump’s stance on easing regulations on AI will boost this space. The market will see a fast shift from proofs of concept to AI deployments and bigger deals being signed. Already the AI outlook was getting better with bellwether Accenture ending FY24 with Gen AI order inflows of $3 billion. AI projects for Indian firms are expected to increase at a fast clip. This will have a cascading impact across verticals including hi-tech, consumer, energy, and BFSI as more companies lean on AI to build their competitive edge.

Could there still be some headwinds?

Notwithstanding positives for the software services exports sector, much will depend on the policy statements post 20 January, when Trump assumes office. Whether the IT business grows and IT stocks continue to rally depends on policy decisions by the US Fed and Trump’s proposed tariff measures. As of now, what shape the US import duties could take and their wider ramifications are still unknown. While the services sector may be immune to an extent, a negative shock cannot be ruled out at this stage.