The recent collapse of Silicon Valley Bank and Signature Bank in the United States sparked fears of a fallout on the Indian banking system. While Indian banks seem well insulated from such external shocks, some Indian IT majors are not in the position as they derive a bulk of their revenues from overseas markets, mainly the US and European markets.

Now JP Morgan has flagged TCS and Infosys for potential exposure to the recently collapsed Silicon Valley Bank.

According to JP Morgan analysts, both companies have the highest exposure to the banks, with smaller rival LTIMindtree also affected.

Regional banks in the United States currently account for 2-3% of TCS’ and Infosys’ revenues. However, their exposure to the recently collapsed Silicon Valley Bank (SVB) could be up to 10-20 basis points. TCS reportedly has the largest exposure to the bank.

J.P. Morgan believes all three companies may need to set aside provisions in the fourth quarter due to their exposure to SVB.

The collapse of SVB, along with Signature Bank, as well as concerns of liquidity across the U.S. and Europe, could further soften tech spending by banks over the short term, particularly as the pandemic-led surge in demand has faded.

India's IT industry is already facing a challenging macroeconomic environment in its key markets of Europe and the United States, where technology spending is contracting amid delays in decision-making on long-term deals.

The banking crisis could delay deal ramp-ups, impacting revenue conversions over the next two quarters, and push back new order closures that could hurt revenue over the next four quarters, J.P. Morgan warns.

Indian IT firms draw the bulk of their revenue from the banking, financial services, and insurance (BFSI) sector. Within BFSI, their exposure to U.S. banks is on average 62% and Europe 23%, according to J.P. Morgan.

LTIMindtree recently confirmed that it has negligible exposure to U.S. regional banks, including SVB.

J.P. Morgan has an "underweight" rating on IT sector. The brokerage believes that the banking crisis could further impact the already slow growth in bank tech budgets.

2023-03-17T13:26:55Z dg43tfdfdgfd