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Waiting for the Rebound
 Traditionally, the JAS quarter generates substantial enterprise demand for IT solutions due to the half-yearly tax filing norms. Hence, it is the right time to gauge customer confidence.
In the first month of the quarter though, there hasn’t been any visible uptick in enterprise demand.
Frankly, at the start of the quarter (before the budget was presented), I was expecting a major revival in demand. With the UPA coming back to power with a more stable coalition, everyone expected the Finance Minister to deliver a 10/10 budget.
However, the budget didn’t match the expectations, and this surely has dented enterprise confidence. Although, post budget, the FM did announce disinvestment and divestment initiatives and also cheaper home loans, but the lack of clear roadmap for policy reforms hasn’t inspired much enthusiasm and confidence among the corporates.
One heartening development though is the better-than-expected Q2 financial results of companies across most sectors. While the overall topline growth of India Inc. has been muted, companies have recorded significant improvement in bottomline, primarily through aggressive cost-cutting measures and rationalization of input costs.
But I see a flipside to this. The stagnant topline points to lack of demand. Also, companies may continue with cost-cutting measures for one more quarter to further consolidate, before they decide to get into aggressive demand-generation mode to achieve topline growth.
The fear of interest rates trending northwards over the next six months could make enterprises cautious in their outlook. Expectation of interest rates going up stems from the belief that the government will need to borrow substantially to bridge the 6.8 percent fiscal deficit projected in the budget, thus sucking out the liquidity from the market.
This could mean that the JAS quarter may not live up to expectation. I don’t expect any substantial increase in IT spendings from enterprises.
While there is no denying that market sentiments have improved significantly, the strong rebound I was expecting is some time away.
Let me know if you agree with my analyses. |