IT firms likely to see muted Q4 growth – The Financial Express

The Financial Express
IT services companies are likely to post muted quarter-on-quarter revenue growth, ranging from a 2.1% decline to a 2.3% growth, in the January-March quarter, according to analysts and brokerage firms.

Growth will be impacted by the usual seasonality during the quarter and slowdown in discretionary spends, as companies focus more on costs and return on investments, and deterioration in demand caused by macro uncertainties in impacted verticals of mortgages, hi-tech, and parts of retail and telecom.
According to Kotak Institutional Equities, Tata Consultancy Services (TCS) will outperform on revenue growth among Tier 1. “We expect flat revenue on constant currency basis for Infosys and 1.5% growth in services for HCL Technologies. We expect a q-o-q decline in revenue on constant currency basis for Wipro, TechM and Mphasis,” Kotak said in its report.

“IT companies under our coverage, ahead of their silent period, have mentioned increased cautiousness among clients around decision-making due to heightened uncertainty arising from the recent banking crisis. Deal pipelines have not shrunk, but conversion to new deal wins is taking longer time,” ICICI Securities noted.

The brokerage said this implies postponement of demand to the second half of FY24 or even FY25. It said although the exposure of IT firms to US regional banks is at best in low-mid single digits of overall revenues, the overall exposure to BFSI vertical is quite significant. “This might lead to a decline in sequential revenue growth this quarter.”

Kotak expects Infosys to guide for 5-7% revenue growth and HCL Tech to guide for a 5-7% growth for services and 4-6% overall. “We expect Wipro to guide for revenue decline of 1% to growth of 1% for Q1FY24. On margins, we expect guidance of 21-23% for Infosys and 18-20% for HCL Tech,” it wrote.

According to Motilal Oswal, with industry hiring ahead of the curve in anticipation of strong demand and high attrition, most firms have taken a hit on profitability in the current year. “However, moderation in hiring, lower backfilling costs due to easing attrition rates, lower sub-contractor expenses and normalisation in salary costs should support margin expansion in the medium term,” it said.
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