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This week is likely to be an exciting one for investors in the Indian information technology (IT) stocks. The December quarter earnings of large-caps Infosys Ltd, Tata Consultancy Services Ltd and Wipro Ltd are scheduled for 12 January.
Ahead of tier-I tech results, ISG – a global advisor to the IT services sector – has said it sees strong demand momentum sustaining in 2022. Analysts say this bodes well for the Indian technology sector.
In its Q4CY21 call, the ISG management said that as against its expectations of a sequential decline, growth was flat on a quarter-on-quarter (q-o-q) basis, however, it rose 30% year-on-year (y-o-y). As far as deals are concerned, ISG's annual contract value (ACV) rose to an all-time high in 2021, yet it expects ACV in 2022 to increase 14% y-o-y backed by legacy and cloud deals.
This bodes well for Indian IT companies.
Analysts at Motilal Oswal Financial Services Ltd see the strong double-digit growth outlook for 2022/FY23 from ISG as a positive. In a report dated 11 January, the domestic brokerage house said that it supports our view that the demand momentum should continue to support growth in IT Services despite the high base. "More importantly, growth remains broad-based in both 4QCY21 as well as for 2022E. We expect strong initial commentary from Indian IT services companies for FY23 over the duration of the 3Q results season," added the report.
On the flipside, ISG sees little relief on the sector's ongoing pain point of elevated attrition. ISG expects the issue of higher attrition to persist for another two-three quarters.
"In the near term, rising attrition and higher employee additions would be headwinds to margins, which we expect to be negated by price increases, pyramid optimization and automation in the medium term," analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd. said in a report. The research house expects India IT services companies in our coverage to grow at around 1.5 times of pre-COVID levels over CY22-24.
