Begin typing your search...

IT majors reaping benefits amid slowdown concerns

Third quarter results of top four Indian IT services firms- Tata Consultancy Services (TCS), Infosys, HCL Tech, & Wipro- clearly reflect a subdued demand environment this year.

IT majors reaping benefits amid slowdown concerns
X

IT majors reaping benefits amid slowdown concerns

  • Whatsapp
  • Telegram
  • Linkedin
  • Print
  • koo
  • Whatsapp
  • Telegram
  • Linkedin
  • Print
  • koo
  • Whatsapp
  • Telegram
  • Linkedin
  • Print
  • koo

Third quarter results of top four Indian IT services firms- Tata Consultancy Services (TCS), Infosys, HCL Tech, & Wipro- clearly reflect a subdued demand environment this year. However, the management commentary of different companies indicates varied stress points. Market leader TCS says both US and UK markets remain strong in terms of technology spending by clients, while Europe remains a region of concern owing to the Russia-Ukraine war and its resultant energy crisis. For India's second largest IT services exporter, Infosys, segments like mortgage and investment banking, retail and hi-tech verticals are showing some kinds of strain. Wipro's management is confident of demand environment in Europe but sees retail sector in the US facing a challenging demand environment. HCL Tech's growth was subdued in the American region with softness in hi-tech, retail and BFSI verticals partly due to higher-than-expected furloughs. This indicates that stress points for the four technology majors are different despite some similar pain points.

Meanwhile, having bagged large deals, all large-tier IT firms are gaining immensely from vendor consolidation, signifying a typical economic slowdown. During slowdowns, major cost takeout deals enter the market and enterprises tend to prefer a large service provider, which can provide a multitude of services. During the December quarter, TCS bagged deals worth $7.5 billion, which wasslightly lower than the preceding two quarters.The Bengaluru-headquartered Infosys won large deals worth $3.3 billion, highest in eight quarters as against $2.7 billion bagged in the previous quarter. The company opines that its deal pipeline continued to be strong as it entered the fourth quarter. Wipro, despite its subdued revenue growth performance, had record bookings of $4.3 billion as it participated strongly in cost takeout deals. HCL Tech won 17 large deals during the quarter out of which seven were in services segment and 10 in software. The total contract value (TCV) of the new deal win was at $2.35 billion for HCL Tech, a rise of 10 per cent over the same period last year.

Apart from strong deal wins, margins of all large IT services firms improved during the quarter. As employee attrition numbers fell sharply during the quarter, big IT firms reported decline in wage cost. Moreover, utilisation levels of all large IT companies improved during the quarter as freshers joined projects after three to six months of training. These factors are expected to play out in the coming quarters as the startup world continues to struggle with a funding winter. Amid such numbers, employee additions saw a sharp drop in the December quarter. For TCS and Wipro, total headcount dropped for the first time in several quarters while there was a marginal increase for Infosys and HCL Tech. Usually, net headcount addition is considered as a lead indicator for growth. So, while on one hand, falling attrition numbers will support margin profile; fall in employee addition is a reflection of demand slowdown in the coming quarters. On that count,the December quarter performance can be seen as indices for what lies in store for the Indian IT industry in the next financial year.

Bizz Buzz
Next Story
Share it