India IT services biz set to sink to three-year lows in March qtr

India IT services biz set to sink to three-year lows

NEW DELHI With experts anticipating three-year lows for the industry on multiple indicators like contract bookings and revenue growth, domestic IT services companies are likely to end the most recent financial year on a depressing note.

The top two IT services companies, Infosys and Tata Consultancy Services (TCS), are expected to post earnings this week for the March quarter. HCLTech, Wipro, Tech Mahindra, and other companies will follow suit this month.

The outcome of the March quarter might also set the tone for FY24, when industry experts anticipate deferred transactions to slow revenue realisation and new deal signings. According to Omkar Tankale, an equity research analyst at Axis Securities, the March quarter will provide important information about how long global tech expenditure will remain poor.

The banking, financial services, and insurance (BFSI) sector, which accounts for approximately 30% of revenues for large-cap corporations, is the primary cause of the industry’s problems. According to experts, another factor contributing to the slowdown is continuous staff expenditures that are reducing profits.

For instance, four of the top six companies, TCS, Infosys, HCLTech, and Wipro, were predicted in a forecast note by Mukul Garg, a research analyst at the financial services company Motilal Oswal, to achieve less than 1% sequential revenue growth in the March quarter. The single company expected to report revenue growth of 1.6% is the recently merged LTIMindtree, while Tech Mahindra is predicted to report revenue decline of 0.7%.

According to Garg in a letter to investors, these companies’ weak revenue growth may also be accompanied by a meagre 1.2% sequential increase in profits before interest and taxes (Ebit) as a result of a slower rate of deal realisation. In addition, brokerage HDFC Securities’ Institutional Research note to investors on April 6 painted a similar scenario, forecasting revenue decreases for HCLTech, Tech Mahindra, and Wipro while forecasting modest revenue increases for TCS and Infosys. The large-cap IT companies’ revenue changes could range from a 2% decline to a 1% sequential increase from the December quarter.

Due to delays in long-term clients’ payment cycles, according to Apurva Prasad, vice president at HDFC Securities, companies with market values of above 20,000 crore are anticipated to be the worst affected in Q4FY23. The collapse of western banks like Silicon Valley Bank, Silvergate Bank, and Credit Suisse has generated uncertainty in the banking sector, and this is likely to encourage businesses across industries to pool their discretionary tech spending.

Contract closures might occur this quarter, but if they don’t happen now, they won’t have any impact on the sector’s financials in the first two quarters of FY24, according to Tanksale at Axis.