IT firms expected to keep Q2 momentum
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 September 30.
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.