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Healthy growth on the cards for IT industry in Q3

Despite being a seasonally soft quarter on account of less number of billable days, the third quarter ended December 31, 2021 is likely to show healthy revenue growth momentum for the IT industry.

Analysts have pegged revenue growth of 3.3-4.2 per cent (quarter on quarter) and a growth of 5.8-6.2 per cent in net profit in an ‘adverse’ quarter.

They, however, flagged the threat of a sharp raise in Omicron cases that might cause challenges on the supply side. The outlook for the fourth quarter of 2021-22 and 2022-23 look promising.

The bad news, however, is that the IT industry continues to be saddled with higher attrition and shortage of skilled resources. This trend is expected to haunt the industry for the next two-three quarters.

The growth, IT analysts say, would be driven by strong demand for digital, cloud, data analytics and artificial intelligence solutions.

According to analysts at Emkay Global, the tier-I companies might register a revenue (dollar) growth of 1.9- 3.3 per cent quarter on quarter, while the tier-ii firms are expected to grow in the range of 1.1-10.5 per cent.

“While the December quarter is seasonally soft one (due to furloughs and lower working days), we expect the companies that we covered to report steady sequential revenue growth on good demand, healthy deal wins and active mergers and acquisition activities,” they said.

Mid-cap companies are likely to outperform Tier-1 companies in growth thanks to steady deal wins, good deal pipelines and better level playing field with shrinking deal sizes.

Motilal Oswal, however, forecast a higher growth rate of 4.2 per cent in revenues and 5.8-6.2 per cent in net profit.

“We expect a strong initial outlook for the financial year 2022-23 and the fourth quarter of the current financial year on the back of elevated spend on cloud migration,” it felt.

Attrition and hiring
While predicting stabilisation of attrition which has been been putting pressure on the margins, the firm felt that attrition levels would still be at elevated levels.

While skill-specific cost has increased, companies are expected to right size their pyramids in order to offset the increase.

“Hiring across our IT coverage will continue to remain high as companies try to fulfil demand and backfill growing attrition,” a Motilal Oswal analyst said. The Hindu BusinessLine

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