Indian IT companies to report muted sequential growth in Q2

Large Indian IT services companies are expected to report ‘muted’ sequential show in a traditionally strong second quarter, as macroeconomic challenges continue to weigh on global discretionary spending, say market watchers.

The big earnings week for tech heavyweights is up ahead, with Tata Consultancy Services scheduled to announce its results on Oct. 11, and both Infosys and HCL Technologies on Oct, 12. Wipro is slated to declare its Q2FY24 results next week, on Oct. 18.

Large Indian IT services companies are expected to report ‘muted’ sequential show in a traditionally strong second quarter, as macroeconomic challenges continue to weigh on global discretionary spending, say market watchers.

The big earnings week for tech heavyweights is up ahead, with Tata Consultancy Services scheduled to announce its results on Oct. 11, and both Infosys and HCL Technologies on Oct, 12. Wipro is slated to declare its Q2FY24 results next week, on Oct. 18.

Motilal Oswal Financial Services, in its earnings preview, said the growth of the IT services industry is expected to remain weak in Q2 FY24, as macroeconomic uncertainty continues to weigh on discretionary spending.

“While the industry has witnessed an uptick in order inflow over the past two months with a focus on cost efficiency, the slowdown in project-based business is expected to hamper overall industry growth, even though Q2 is traditionally a robust season for the sector,” it said.

For its IT Services coverage universe, it predicted a median revenue growth of 1.5% quarter-on-quarter and 5.7 per cent year-on-year for July-September period, and added this growth rate is ‘among the slowest observed over the last decade’, despite a marginal impact from foreign exchange fluctuations.

“However, a focus on cost-control (led by deferrals in wage hikes) measures should lead to margin improvement in 2Q, and help the industry deliver 3.7%/4.1% QoQ growth in EBIT/PAT (earnings before interest and tax/profit after tax), respectively,” it said.

Sectors such as banking, financial services and insurance, retail, hi-tech, and communication continue to show signs of softness, in the face of increasing inflation and declining consumer spending.

With spending patterns shifting toward cost reduction and efficiency-focused initiatives, deal components targeting these essential areas have experienced increased momentum, supporting overall growth.

“However, the worsening macroeconomic conditions are tightening spending on transformational initiatives and non-critical multi-year projects,” Motilal Oswal said.

Echoing similar sentiments Sharekhan (by BNP Paribas) said: “We expect q-o-q constant currency revenue growth of -0.4% to 1.1% for tier-1 Indian IT service companies and 1.5% to 4.4% CC revenue growth for tier-2 IT companies.”

According to Sharekhan, robust deal bookings with several mega and large deals involving cost optimisation and consolidation could support H2 normalisation for Tier 1 companies and set the tone for improved FY2025. PTI