Cloud, security to be priority even if recession hits US: Morgan Stanley

The report suggests limited near-term impact for Indian IT services players, but commentary on FY24 will be crucial

With recessionary clouds hovering over the US, chief information officers are relooking their budget to control costs. In such a scenario, cloud computing, security software and digital transformation will continue to be top priorities for CIOs, said a latest Morgan Stanley report. The report comes amid the likelihood of cuts in data centre build-outs and consulting projects in the event of a worsening macro environment.

According to Morgan Stanley’s 2Q22 CIO survey, expectations for 2022 IT budget growth came in at 4 per cent (vs 4.2 per cent growth expected in 1Q22 and 4.1 per cent growth cited by CIOs for 2021). On the services side as well, 2022 IT budget growth expectations stood at 3.5 per cent, moderating for the third consecutive quarter), said the report.

As far as Indian IT services players are concerned, the report suggests that there will be limited near-term impact but commentary on FY24 will be crucial.

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“Takeaway for Indian IT: Disconnect between macro (moderation in spend) and micro (positive commentary from companies) continues. In the near term, growth is likely to be strong in 1HFY23, so near term expectations may not be at risk; however, the key will be the outlook for FY24 growth,” said the report.

The survey was conducted via phone and online interviews with 100 decision makers representing 100 enterprise Information Technology organisations during May and June 2022. Sixty-five respondents were from the US and 35 from Europe.

In a recent report by Business Standard, analysts had concurred that if a recession does happen, the impact on Indian IT services players will be evident only in the second half of the year.

“If IT budgets tighten; large corporations always try to seek lower cost options first. While overall volumes may fall, Indian IT services and product firms are well positioned to make incremental gains, win market share, and emerge from this phase of economic uncertainty even stronger,” said Peter Schumacher, founder and CEO, Value Leadership Group.