For select Indian IT companies, exposure to the healthcare vertical has proven to be a boon, bolstering earnings at a time when other segments faced significant pressure.
Persistent Systems Ltd, a tier-2 IT firm with the highest revenue contribution from healthcare, recorded impressive growth in this segment, averaging 51% year-on-year over the last four quarters, according to a Motilal Oswal Financial Services report dated 18 December. Notably, the drag in its hi-tech vertical was offset by increased traction in the healthcare segment, driven by faster ramp-up in large deals.
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In the tier-1 category, the contribution of the healthcare vertical has been somewhat inconsistent for HCL Technologies Ltd. Revenue from the segment declined by 4% sequentially in Q1FY25 but rebounded with approximately 3% growth in Q2FY25. Meanwhile, Wipro Ltd saw stronger performance in this segment, achieving a compound annual growth rate (CAGR) of around 8.5% over the past two years, as noted in the Motilal Oswal report.
A comforting factor is that the healthcare vertical remains relatively insulated from interest rate fluctuations, unlike the banking, financial services, and insurance (BFSI) sector. Moreover, IT spending by healthcare clients is expected to remain stable, driven by continued investments in biotechnology and clinical trials. In contrast, the BFSI sector grapples with delayed discretionary IT spending, with a focus on large-scale transformational projects.
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However, potential changes in US healthcare policies under newly elected President Donald Trump could disrupt the healthcare vertical, posing risks to the earnings outlook for these IT companies. Key uncertainties include a potential repeal of the Affordable Care Act, modifications to Medicaid funding, and stricter drug pricing regulations. A lack of clarity on these issues could moderate the performance of the healthcare vertical in the near term.
