IT companies could beat weak third quarter trend with strong numbers

Bombay: India’s IT services leaders are expected to release strong figures in the seasonally weak third quarter ended December 31 due to strong customer demand.

IT leader Tata Consultancy Service (TCS) is expected to show traction on major contracts won in the quarter, analysts say, while

should revise upwards its forecasts for the year. is expected to demonstrate gains in its product business over the period October-December.

The strong outlook would come from digital transformation and cloud computing initiatives during the quarter, analysts said.

The fact that three leaders in IT services report their quarterly results on January 12 is also an indicator of their confident performance for the quarter. Level II companies are expected to outperform Level I IT majors, they added.

Despite companies highlighting the normal impact of time off, Tier I IT revenue growth is expected to be strong, with Infosys leading revenue growth at around 4.8% QoQ (quarter over quarter) at constant exchange rates, ”brokerage firm Motilal Oswal said in a note. “HCL Technologies will benefit from the seasonality of P&P (products and platforms) growing by around 4.5% QoQ (CC), followed by

, and TCS.

Tier I providers are expected to generate profit growth of around 11% year-over-year (YoY) and 6% QoQ, according to the brokerage.

TCS and Infosys are expected to post profit growth of 17% and 13% year-on-year, respectively.

HCL Technologies is expected to post a slight decline in profits, while Wipro is expected to post stable growth, he said.

Analysts also expect companies to report some stability in attrition numbers after a few quarters of high attrition, even as the industry expects talent supply constraints to continue. until the first quarter of the next fiscal year. However, with many new entrants to the companies during the third quarter, some stability is expected.

“The margin during the quarter is expected to remain stable on a sequential basis. However, there will be a decline in the year-over-year margin as companies have implemented two rounds of wage hikes since December 2020 to counter attrition, ”noted HDFC Securities. “The main remaining margin hurdles are the higher cost of talent replacement, lower fill rates due to newer hires, and increased discretionary costs. ”

Demand environment remains broad, driven by strong traction for digital, cloud, data analytics, 5G, IoT, cybersecurity and AI, and analysts expect comments on how recent deals are shaping up for businesses.

Despite a lower Total Contract Value (TCV) and more small and medium-sized transactions, India’s relative share of Tier I has improved, Elara Capital said.

Emkay Global Financial Services expects healthy revenue growth momentum to continue in the quarter based on a widespread secular demand environment, with revenue growth of 1.9-3.3% QoQ (2.7 to 4.0% CC) for Level I IT service companies.

The best performance order is expected to be Infosys, TCS, HCL Tech, and Tech Mahindra among the Tier I names. that the companies in our coverage universe experience steady sequential revenue growth based on secular trends in widespread demand, good deals and active mergers and acquisitions. activities, ”according to a memo from Emkay Global.


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