Market lookout: The recession in the US and its impact on the Indian market – Matrix Bricks Infotech

Market lookout: The recession in the US and its impact on the Indian market

The word Recession brings a chill to the spine. You may have heard it doing the rounds in your professional sphere recently and either wondered what it means- the definition, or what it means- for the future. Either way, we are here to help you with both  

What it means: the meaning

A recession is a meaningful and extensive downturn in economic activity that is generally observed to be ongoing for two consecutive quarters, leading to a decline in the gross domestic product (GDP). 

The economists at the National Bureau of Economic Research (NBER) measure recessions by going beyond the simpler two-quarters of negative GDP measures—  by looking at nonfarm payrolls, industrial production, and retail sales; among other indicators. 

In general, a recession brings decreased economic output, lower consumer demand, and high unemployment.

 

Why is this happening right now?

The Global GDP has been projected to grow by 3.1% this year, and just 2.2% in 2023, according to Organization for Economic Cooperation and Development (OECD)’s the latest forecast. 

And though the OECD has not out and out predicted a recession, the forecast is pretty pessimistic— way more than that of the IMF, which stated that it expects the world economy to grow by 3.2% this year and 2.7% next year

If you have been up to speed with what’s happening around the world, then you already know the cause: Russia’s war against Ukraine, which has sparked an energy crisis, spurring inflation worldwide

As a result, every industry and every country has been grappling with these changing tides in its own way. The US-based companies, including many tech firms, have fired thousands of employees in 2022 alone, slamming the brakes on hiring new talent

How does this affect Indian IT companies? 

According to the rating agency CRISIL, The US and Europe together contributed around 86 per cent to Indian IT firms’ revenues in FY22. 

But this isn’t an overnight development: India has long been a vital provider of IT services solutions for global corporations. 

This is illustrated best by the business process management sector making up a whopping 9 per cent of the South Asian country’s gross domestic product and 56 per cent of the global outsourcing market, as reported by the India Brand Equity Foundation. 

This naturally makes the outlook for the US and Europe markets very important for Indian IT companies. 

According to a research note on India’s IT services sector by Kotak Institutional Equities, tech spending continues to be a vital area of focus for banks and financial services firms who are in the early stages or the midst of a tech upgrade journey. 

Because the benefits are visible, spurring further investments in new products and services as well as cloud migration and modernisation of legacy stack. 

But a weak economic prognosis puts a wedge in this progress, forcing enterprises to re-look at costs, both tech and non-tech-related, leading to a slowdown in spending. For example, Infosys BPM (business process management), the BPM arm of Infosys, recently reduced the variable pay of employees by 40% in the second quarter of this fiscal. 

The way ahead 

While the IT sector’s costs have been increasing, employers are trying to attract and retain skilled staff just the same. From an employer’s point of view, talent supply is said to be the biggest bottleneck, with an ongoing talent war that’s failing to meet this demand. 

Offsetting this is the rapid growth of India’s start-up sector, which is attracting high levels of funding, adding to the fierce competition for skilled IT workers. This is why many IT leaders see staffing as a growing obstacle even as companies gear up for growth in the years to come, in the face of recession concerns. 

As a digital marketing agency that also provides IT solutions such as AI, Cloud service etc, we believe now is a good time for IT professionals to assess themselves and evaluate their skillsets, ie. it is time for professionals to upskill themselves

This is entirely possible with so many free (and paid) quality resources in the market, such as specialised courses and youtube videos, that one only needs an android phone and a stable internet connection to get started and keep up!

Lastly, one can also weather the storm by networking better for the possibly difficult future. If you have a strong body of work, you just need to put together a portfolio, update your CV and keep pitching your services to potential employers. If not, then upskill yourself.

Because in the words of the Kotak analysts, “Technology spending is viewed as an investment for future growth and will not be cut drastically even in case of a recessionary environment”. According to them, an increase in online usage provides an impetus for companies to maintain tech spending even in the face of a possible recession. For IT professionals, this means that there’s hope.

 

Sources: 

https://www.investopedia.com/terms/r/recession.asp

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