Will IT Q4 results buoy market mood?

FY22 Earnings Season

- TCS, Wipro, Tech Mahindra and HCL Tech expected to register double-digit revenue growth rate

- Mid-tier IT firms L&T Infotech, Mindtree, Coforge, L&T Tech and others may announce their top lines in high teens

Though there are no signs of any slowdown so far, companies' commentaries on demand environment, deal pipeline and margin profile will be important for building expectations. Also, supply side issues like attrition and resuming work from offices will be critical for knowing the risks, said a Mumbai-based analyst

Bengaluru: Indian IT services companies are likely to post strong fourth quarter results owing to a robust demand environment, but all eyes will be on the commentary of the management with regard to growth expectations in the current financial year (FY23).

Amid an uncertain global environment due to Russia-Ukraine conflict, rising inflation and disruption in supply chain environment, experts are keen to listen the commentary on deal pipeline, client-specific issues and operational disruptions for gauging the prospects.

Indian IT industry will kickstart the earnings season with market leader Tata Consultancy Services (TCS) announcing its results on April 11. Country's second largest IT services company Infosys will announce its Q4 earnings on April 13.

"Though there are no signs of any slowdown so far, companies' commentaries on demand environment, deal pipeline and margin profile will be important for building expectations. Also, supply side issues like attrition and resuming work from offices will be critical for knowing the risks," said a Mumbai-based analyst.

Against the backdrop of a rapidly evolving global event, most analysts feel that Indian IT services companies are likely to sustain revenue growth rates in FY23. This is largely due to a strong deal pipeline that IT firms have already won last year coupled with the demand environment.

"Accenture's Q2FY22 performance and guidance suggest a very strong demand environment over the next few quarters. It also provides some comfort with respect to concerns over growth in client IT budgets amidst worsening macro," equity research firm Jefferies said in a report.

In FY22, most large IT firms including Tata Consultancy Services, Wipro, Tech Mahindra and HCL Technologies are expected to register double-digit revenue growth rate.

Infosys has projected to lead the market with 19.5-20 per cent revenue growth rate. Leading mid-tier IT firms including L&T Infotech, Mindtree, Coforge, L&T Technology Services, and others are likely to grow their top lines in high teens during this fiscal year.

However, sustaining the growth rate this fiscal will be difficult given the high base of FY22. Moreover, operating margins of Indian IT firms are likely to come under pressure owing to resumption of travel and beginning of work from offices. Most IT companies have asked their employees to resume work from offices in hybrid mode from this month onwards.

Supply side issues with high attrition remains the key worry of Indian IT industry, which is likely to ease a bit in FY23. However, with many IT firms planning to resume offices from April in phases, HR experts feel attrition may spike in the near-term.