June quarter could be weaker than March quarter for IT firms

June quarter is anticipated to be even weaker than the March quarter for IT firms. Consumer spending continues to be low. Key sectors like banking, financial services and insurance (BFSI), which is a major contributor to the top and bottom lines of Indian IT companies, has faced headwinds in the US, especially after the collapse of banks like Silicon Valley Bank and First Republic, among others. Europe is also not looking great.

“Last quarter, we expected North America to recover through the start of the year meaningfully. This recovery has obviously not materialised and turned out to be more negative than we had expected,” TCS’ outgoing CEO Rajesh Gopinathan said in a post-earnings conference call, after the company reported its slowest constant currency revenue growth in 11 quarters. “Clients deferred newer initiatives which were not critical. In some cases, [they] completely halted discretionary projects,” he added.

Infosys reported “unplanned project ramp downs” and delays in decision making as one of the reasons for missing its own FY23 revenue guidance.

“The full impact of this will be visible in the June 2023 quarter,” said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S and Vamshi Krishna. “Companies indicated that demand in North America was hit by the deterioration in macros, uncertain economic outlook and recent banking crisis…We expect demand in North America to continue to be weak in the first quarter of FY24,” they said.

“Growth for IT services companies has been democratic in the past two years, as enterprises spent aggressively on digital journeys. While digital spending will continue, a challenging environment will also force organisations to focus on costs,” said Kotak analysts.

CT Bureau