Road ahead for Indian IT in a post-Covid world

• Impact of Covid and remote working

• Impact of US elections on H1B visas

• Covid vaccine and how it would impact Indian economy

Impact of Covid and Remote Working

It is eight months since the world in general and India in particular has been under the ominous impact of Covid-19 which has caused widespread economic hardship for millions of Indians across the country. Although certain segments have bounced back to near normal - auto segment for instance, many other sectors like hospitality, restaurants and commercial real estate are going through a crisis which many have not witnessed in the last two decades. A significant factor affecting the latter segments especially in metros (Bangalore, Delhi, Hyderabad etc) is the shift to remote working by majority of companies. This has resulted in the young workforce in the thousands to move back to their hometowns, migrant workers going back to their villages and towns as the construction and infrastructure work came to a grinding halt. As a consequence the backbone of these sectors which rely heavily on the disposable income of this demographic.

Several tech companies have announced work from home until Q2 of 2021 and have begun to downsize their office space as they do not foresee the previous level of demand coming back up anytime soon. This will have medium to long term impact in how IT companies operate and what it means in terms of demographic shifts from tier II and tier III cities to tier I and metro cities. Tech companies in particular are seriously deliberating having a large percentage of their workforce, if not all, to work remotely on a permanent basis. This will be a huge tailwind for tech companies as a significant portion of their costs go into infrastructure and operations. And a remote working workforce will also increase supply as engineers are no longer restricted to location and compensation structures will also be normalized to align with cost of living indexes of tier II and tier III cities.

US Elections and H1B Visas

On the other hand one potential headwind that will impact Indian economy and the famed IT skilled workforce is the US elections. Although Joe Biden and Kamala Harris are projected to occupy the White House come January 2021, it is not set in stone just as yet with allegations of voter fraud being brought up by the Trump camp. It is not totally inconceivable that we see another Al Gore scenario play out when the Supreme Court in 2000 ruled George W Bush as President after mainstream media projected the former to be the winner. Previously, the Trump administration had made work visas, especially H1B increasingly restrictive which adversely impacted the tech giants Infosys, Wipro et al. With a Democrat administration at the White House the general consensus is that they will be more lenient with immigration policies which favours the IT sector. Nevertheless. with this uncertainty to continue for another month at least, the presently buoyant capital markets can start shivering as Winter sets in across the country.

Covid vaccine and its impact on the Indian economy

Pfizer, the US pharmaceutical giant announced last week that the vaccine they have been working on has demonstrated to be more than 90% effective. As a result markets world over including Indian markets went up. Nifty has gained close to a 1000 points since November 3rd and the markets do not seem to show any sign of slowing down on this much anticipated relief from the Covid-19 nightmare. However, challenges with respect to lack of cold storage facilities to store them in India and the possible increase in the number cases as we enter the winter months are headwinds that the markets might encounter.

With Nifty close to all-time highs, any new investments now will be in frothy territory and investors may be wiser off waiting for a sell off before entering the market, while existing portfolios will continue to be invested. Typically at all-time highs the FOMO (Fear of Missing Out) phenomenon is at its highest and that is usually when smart money take money off the table.

To conclude, all though markets have given a tremendous recovery in six months and are currently looking frothy, in the medium to long-term Indian IT companies look ripe even at current levels for all the factors stated earlier.

(Sandeep Sudarshan is currently a Senior Manager at the Global AI Accelerator at Ericsson R&D, having previously been Head of AI at Graphene. He has expertise in Technology, AI and Capital Markets building Algorithmic Trading Platforms).