US Presidential Election 2024: In the context of any event taking place in the United States (US), Indian investors are usually quick to assess the future of the Information Technology (IT) sector as there is a strong link between the IT industry in India and NE.

That 2024 US Presidential Election approaches, investors assess the potential effects on the IT sector. Market analysts are also considering the ramifications for the sector and India in the event of a Kamala Harris victory, as well as the fallout if Donald Trump is re-elected. Other sectors that could be impacted include autos, energy, defense, commodities and metals, and pharmaceuticals.

Indian IT companies are significantly affected by the US economy as they are highly dependent on American customers. Major Indian IT players viz TCS, Infosys, Wipro, HCL Technologiesand Tech Mahindra generate more than half of their revenue in the US. Changes in the US economy can have a direct effect on the revenue and growth opportunities of these firms. According to the India Brand Equity Foundation, India’s IT and business services market is expected to reach $19.93 billion by 2025.

According to Arun Kejriwal, founder of Kejriwal Research and Investment Services, the overall market will be impacted, but the IT sector will be particularly affected because of the way business works in the US, which involves currency fluctuations; these factors will have a greater impact on IT compared to other sectors.

Would the impact of the 2024 US presidential election be positive or negative for Indian IT stocks?

PhillipCapital, in its latest report, noted that the initial effects appear more severe if Trump is elected because of his anti-immigration policies. However, IT firms in India have tried to mitigate this risk by hiring more local staff in on-site markets, using subcontractors and establishing additional delivery centers near shore.

On the other hand, Saurabh Patwa, head of research and portfolio manager, Quest Investment Advisors, pointed out that historically, US elections have had little or no impact on IT spending patterns of US companies , so the election cycle is not expected to be significant. change the trajectory of the sector.

Overall, the outlook remains cautiously optimistic for IT in India, driven by sector recovery and steady demand.

Political impact on India

Arun Kejriwal said the US election will influence more than the IT sector; what other factors do people consider? Currently, the Democrats are in power and the election results are too close to be called. It is not certain whether the Democrats or the Republicans will come out on top. Some key geopolitical issues arise as both candidates express their anti-China sentiments at this time. Such postures against China can benefit India by increasing export opportunities and fostering improved relations. However, there is also anti-India rhetoric, especially from Canada, which adds a layer of negativity. The political landscape is quite complicated, and clarity is likely to emerge only after the new president is in office.

China’s initiative to engage with India at the BRICS meeting underscores the struggles of its ailing economy. They need a significant market to buy their products. Currently, the only nation capable of consuming China’s output is India. It is uncertain whether India will fully reopen its market to China as it did five to eight years ago. If it chooses to reopen, it will likely do so with many restrictions to restore trust between the two nations. This will not be based on blind trust. If we continue to manage our relationship with China, the US will inevitably seek to strengthen ties with India. At the same time, it has to sell defense equipment to India.

What indicates in market? The market is unlikely to see an overwhelming triumph from either side, and it doesn’t really matter who takes the lead – whoever it is. However, depending on who steps in and how they react ahead in India, future circumstances will depend on that.

India’s IT Sector Outlook

Results in the IT sector have largely met expectations so far. In the US, the BFSI sector is experiencing a recovery, marked by rising volumes and slow growth in discretionary spending. Conversely, challenges remain in Europe, particularly in the automotive and manufacturing sectors, affecting the performance of various companies. Overall, organizations are navigating the tough macroeconomic landscape with demand stabilizing across key verticals, according to Saurabh Patwa.

Positive indicators point to a more robust recovery in the IT sector in the coming quarters. The resurgence of financial services, along with the expected expanded growth in 2QFY25, is expected to improve performance in the second half of FY25 and beyond. Impressive results from major US banks are promising, suggesting a potential trickle-down effect that could benefit IT services in India as we move forward.

“While the sector may face margin pressures due to seasonal factors such as furloughs and rising wages, the lower interest rate cycle is likely to lead to an increase in discretionary spending, boosting IT demand,” it added Patwa.

Disclaimer: The above opinions and recommendations are those of individual analysts, experts and brokerage firms and not of Mint. We advise investors to consult certified experts before making any investment decisions.