OPEN APP
Home >Industry >Infotech >Growth momentum for IT cos to continue in Q2
Listen to this article

BENGALURU : Top IT services companies such as Tata Consultancy Services Ltd (TCS), Infosys Ltd, Wipro Ltd and HCL Technologies Ltd are expected to continue their healthy growth momentum as they prepare to announce their second quarter earnings, according to industry analysts.

TCS, India’s largest software services firm, will begin the earnings season on Friday when it declares its performance for the quarter ended 30 September.

Leading brokerages expect tier-1 IT services companies to post a sequential revenue growth of 3.9-6.9% in constant currency, led by a robust demand environment and deal wins.

Motilal Oswal Financial Services Ltd expects Infosys to lift its FY22 revenue growth guidance again in line with the strong demand environment.

It expects HCL to record growth in the “low teens".

In the June quarter, Infosys raised its FY22 revenue outlook to 14-16% growth from an earlier estimate of 12-14%.

Motilal Oswal said management commentary of these firms on medium-term growth will be closely monitored.

Global technology giant Accenture’s recent earnings indicate a strong and sustainable demand environment, with continued spend on digital and cloud adoption, according to ICICI Securities.

“Covid-19 has made industries across the globe bring about changes to adapt to the work-from-home environment with minimal disruption to their business models. This also led businesses to change their models from captive to outsourcing, which is expected to benefit Indian IT companies," ICICI Securities said.

The margins of Infosys and Wipro are likely to remain under pressure due to factors such as salary increases, higher attrition, and increased sub-contracting and recruitment costs, said Emkay Research.

TCS and HCL are, however, expected to report margin expansion on the back of normalization of wage increases and revenue growth-led operating leverage.

“While skill-specific cost has increased in the market, we expect companies to try to rightsize their pyramids to offset the increase. Hiring across our IT coverage will continue to remain high as companies try to fulfil demand and backfill growing attrition, which will be a key focus area for investors. Tier-1 IT companies are better placed to absorb the supply pressure, given their capabilities with regard to training employees in newer skills," Motilal Oswal said.

Sustained growth momentum on a sequential basis and expectation of qualitative commentary on growth beyond this fiscal should help sustain the ongoing rally in IT stocks, despite their premium valuations, the brokerage said.

Key factors that investors will monitor during the quarterly earnings are deals intake, FY22 outlook, digital business outlook and attrition, according to Emkay Research. Investors will also closely monitor management commentary on the steps taken to meet supply-side challenges and available levers to defend margins, demand environment in core verticals, pricing environment and deal pipeline.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Close
×
Edit Profile
My ReadsRedeem a Gift CardLogout