Weak sequential growth already factored in recent valuation cuts

IT companies under our coverage, ahead of their silent period, have mentioned increased cautiousness among clients around decision-making due to heightened uncertainty arising from the recent banking crisis.

Deal pipelines have not shrunk, but conversion to new deal wins is taking longer time. Also, in certain cases, conversion of orderbook to revenues in terms of deal ramp-ups is taking longer than usual. This, in our view, implies rightshifting/postponement of demand to H2 FY24E or even FY25E as digitalisation agenda of clients remains largely intact, but their near-term focus has shifted to cost optimisation and increasing efficiency.

Although our covered companies’ exposure to U.S. regional banks is at best in low-mid single digits of overall revenues, the overall exposure to banking, financial services and insurance vertical is quite significant. This might lead to a decline in sequential revenue growth this quarter.

Due to cross-currency tailwinds of 100-150 bps during the quarter as major currencies like British pound sterling, euro, Japanese yen appreciated against the greenback, U.S. dollar revenue growth of companies under our coverage would be higher than CC revenue growth. Bloomberg