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Home >Markets >Mark To Market >Will big order book and market share gains drive growth for top IT firms?

For Indian IT services companies, here is the summary of their performance in the March quarter: the industry started on a good note in 2020, but then an abrupt disruption by covid-19 derailed things.

Besides, commentary from top-tier firms made it clear that the June quarter will be impacted far worse and revenues are likely to decline sharply in the September quarter as well. Market leader Tata Consultancy Services Ltd’s (TCS) commentary suggested a recovery only from the December quarter.

Cognizant Technology Solutions Corp. was the last among the top-tier firms to report March quarter numbers. Similar to other large Indian IT firms, Cognizant also warned of an immediate hit to its business. The pandemic and resultant economic slowdown are dampening demand across industries, most significantly within the travel, hospitality, retail, automotive, energy, and media and entertainment segments, said Cognizant.

Positive start.
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Positive start.

But its commentary suggests a recovery, whenever it happens, can be strong. “The pandemic is accelerating the secular trends of core modernization and cloud migration as companies shift to digital business models," said Brian Humphries, chief executive officer (CEO) of Cognizant, in a statement.

Large firms also expect to emerge stronger, helped by market share gains. “Our discussions with clients indicate they would like to consolidate their work with a strong player like us," said Salil Parekh, CEO and managing director of Infosys Ltd, in an earnings call.

Of course, the million-dollar question is when can investors expect the economy to recover. “While clients will be more focused on cost takeout opportunities in the near term, digital transformation will take priority once the pandemic situation ends. IT companies will play a major role in enabling the transformation. We expect deal momentum to pick up gradually for the industry and pick pace by the end of the current fiscal year," said analysts at Kotak Institutional Equities in a note.

While TCS’s commentary suggested a sharp recovery in the second half of FY21, HCL Technologies Ltd said it expects the second half to be better than H1. One reason for the optimism is an increase in order flows lately.

Both TCS and HCL Technologies reported their highest order bookings in the March quarter. Order inflows at Tech Mahindra Ltd and Infosys were also strong. Several of these orders are long- gestation projects. “We do not see the pandemic impacting (our) multi-year engagements beyond the short term," said C. Vijayakumar, president and CEO of HCL Technologies.

To an analyst’s question, TCS said its recovery projection is based on the project pipeline. The big caveat here, of course, is that orders in hand do not equal revenues. It remains to be seen how badly covid-19 hits conversion of orders into revenues.

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