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Indian investors wary that Europe may shelve or delay large IT projects

Outsourcing is India’s most outwardly focused industry. So, it’s only natural that fears of a global recession should make analysts wary of large software firms like Tata Consultancy Services Ltd. and Infosys Ltd.

Their concerns are not so much about the traditionally slow December quarter or even the current financial year that will end in March. A more problematic time frame may be the 12 months starting in April. Given that the epicentre of pessimism is Europe, analysts are drawing comparisons with the region’s 2012 sovereign-debt crisis. A repeat of that experience might make recovery a shallow, long-drawn affair.

A slowdown looks inevitable, though when it comes to gauging its extent, Tata Consultancy’s financial results Monday offered few new clues. Expansion of a decade-long partnership with British retailing client Marks & Spencer Group Plc and a deal with American biopharma firm Gilead Sciences Inc. appear to have made up for nervousness in continental Europe. India’s most valuable software exporter clocked $7.08 billion in revenue, an increase of 8.4% from the December 2021 quarter. Net income of $1.3 billion was virtually unchanged from a year earlier.

“We’ve gone into December with everybody being cautious,” Chief Executive Officer Rajesh Gopinathan said in a post-earnings press conference. “But our view is that this caution has a different colour across markets.”

Still, the Mumbai-based company is not taking any chances. It pruned its employee base by a little more than 2,000, the first shrinkage in headcount since June 2020. From about 23% six months ago, TCS has managed to lift its operating margin to 24.5%. But profitability is only one part of the story; investors also need to get a more definitive read on the overall order book. For both TCS and its Bengaluru-based rival Infosys, analysts are projecting dollar revenue growth of around 10% in the coming financial year. Moneycontrol

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