Shares of information technology companies came under selling pressure today after Credit Suisse Securities India warned of further valuation revisions.

Valuations for major Indian IT companies are currently unsustainable given the deteriorating economic outlook in the US, its largest market, the brokerage said.

The US economy is widely expected to slip into recession in the second half of 2023 as the Federal Reserve aggressively tightens monetary policy to curb the country’s decades-long high inflation.

Since March, the Fed has raised interest rates by more than 350 basis points while reducing its bond holdings on its balance sheet, also known as quantitative tightening.

A recession in the US economy is widely seen as bad for India’s IT industry, which generates around 45-60% of revenue in the world’s largest economy. The shrinking US economy will force customers of Indian IT firms to scale back technology-related spending.

Earlier this week, Amazon Web Services customers said they were considering cutting spending on cloud computing and related services given the gloomy US economic outlook.

Credit Suisse said that while it sees a high risk of lower revenue growth estimates for Indian IT companies, it does not expect this to translate into lower EPS estimates for such companies fully.

Credit Suisse believes that key positives for operating profit, including slower wage growth, wage rationalisation and rupee depreciation, should cushion overall earnings for major Indian IT firms.

The Nifty IT Index fell 1.2% to 29,757 at 9:52 am, with shares in HCL Technologies, Persistent Systems, Infosys, Tech Mahindra and Tata Consultancy Services down 0.4-5.1%.