BNP Paribas, a financial services company, remains optimistic about the future of India’s information technology (IT) service sector. In a recent note, the brokerage firm cites several factors that could lead to the growth of the sector, including the expected monetary and fiscal easing cycle in the US, dollar strength, inventory restocking, and retail consumer-friendly themes. The firm notes that the macroeconomic environment in 2025 is stronger than it was in 2018, with a potential rate cut from the US Federal Reserve and a business-friendly administration.
Despite the risk of inflationary impact from the Trump administration’s tariffs, BNP Paribas believes that the impact of the tariff hike on China in 2018 was limited due to the strengthening dollar index at the time. The firm suggests monitoring the pace of tariffs on China and the offsetting Chinese yuan depreciation.
The brokerage firm also identifies several positives that will support the growth of Indian IT services, including positive real wage growth, a housing and construction recovery, potential Chinese stimulus, and fiscal easing in Germany. As a result, BNP Paribas recommends investing in Infosys Ltd. and Tata Consultancy Services Ltd., two leading Indian IT companies.
Infosys is expected to benefit from the recovery of discretionary demand and the enhancement of generative artificial intelligence. The firm notes that Infosys has the potential for one of the highest earnings estimate upgrade potential. Tata Consultancy Services, on the other hand, is trading near its five-year average price-to-equity ratio, and the company’s near-term client-specific challenges are already priced in. Overall, BNP Paribas sees the Indian IT sector as a bright spot in the current global economic landscape.