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Home >Markets >Mark To Market >Infosys, HCL Tech investors get the jitters after Wipro’s Q4 results

MUMBAI: Wirpo Ltd’s March quarter results (Q4) have brought demand concerns to the fore for the information technology (IT) sector.

At the time of writing, shares of Infosys Ltd and HCL Technologies Ltd were down about 2.5%. Tech Mahindra Ltd and Hexaware Ltd were the worst hit, with declines of 4-6%. Shares of market leader Tata Consultancy Services Ltd, which will report results later today, were flat.

“Wipro’s commentary indicates a tough near-term operative environment post-covid-19, with a cut-back in discretionary spend, restructuring of existing contracts, plus demands for rate-card cuts/relaxed credit terms coming faster – and higher – than our earlier expectations," said analysts at JM Financial Institutional Securities Ltd.

Wipro did not provide quarterly guidance but indicated revenue will fall in the current quarter, putting huge pressure on margins. “Most indicators suggest that the impact will far greater than the global financial crisis," Jatin Dalal, Wipro’s chief financial officer said on a call with analysts.

The impact may not be visible as much in March quarter results – in fact, Wipro’s revenues grew 0.4% sequentially in the March quarter. This is because the impact was limited to the last few weeks of the month of March. TCS is estimated to report a constant currency sequential revenue growth of 0.3-0.6% in the March quarter.

Similar to Wipro, TCS’s results will reflect the revenue loss from missed billings and lockdowns in India, the US and Europe. “Without the covid-19 hit, our revenue growth assumption would have been 1.6% qoq in constant currency. We assume stable margins; impact of lower billing due to Covid-19 disruptions will be offset by Rupee depreciation and lower variable compensation payout," Kotak Institutional Equities said in a note.

Investors and analysts are more keen on the commentary provided by the companies about the extent of impact of the pandemic.

Wipro’s comments indicate significant pressure on pricing. But it suggested that the negative impact of low interest rates on the banking, finance and insurance (Bfsi), a large business vertical for TCS, can be partly offset by the US central bank’s liquidity injection.

Research firm Gartner estimates a 7% reduction in IT services spending in 2020 assuming a recessionary environment. “This will be driven by a higher tendency of CIOs (chief information officer) to conserve cash and a high degree of revenue and cash flow uncertainty resulting in delays in renewals/existing projects, cutback in discretionary spending and rising unemployment levels. IT spending in North America and Europe is likely to lead in terms of declines (the key markets for Indian IT)," Nomura research said in a note after attending Gartner’s webinar.

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