India’s IT sector to report muted revenues in December quarter
MUMBAI, INDIA — Tech companies in India are expected to report moderate revenue growth in the October to December quarter amid increasing cautiousness from their Western clients.
In an interview with The Economic Times, industry analysts expect IT firms to report a median revenue growth of one to four per cent quarter-on-quarter (QoQ), and seven to nine per cent year-on-year (YoY).
Mukul Garg, an analyst at financial firm Motilal Oswal said that tier-1 companies or large enterprises indicated a limited adverse impact on demand, although there will be softness in specific verticals, such as mortgage, retail, telecom, and hi-tech and Europe.
Meanwhile, Dipesh Mehta, an analyst at financial services company Emkay Global, said that “seasonal weakness and increasing caution among clients due to macro uncertainties” would affect the market’s growth.
Mehta added that they expect large companies to report revenue growth of 0.8-3.7% QoQ while mid-cap companies are projected to report a -0.4% to 3.4% revenue growth.
Although improved utilization, billable freshers (fresh grads), and favorable forex rates for some companies are likely to provide some margin tailwinds in the quarter, analysts emphasized that these will be offset by the adverse impact from furloughs and a higher proportion of cost take-out deals.
“While margins will improve on a QoQ basis for the entire coverage universe, we think they will disappoint vis-a-vis prior expectations,” added Girish Pai, analyst, Nirmal Bang Institutional Equities.
Client budgets, incremental commentary on key verticals, deal pipeline composition, and pace of conversion will be keenly watched for assessing the near-term demand outlook, analysts said.
“The risk for IT services stocks is continued revenue weakness in the second half of FY2023 followed by a tepid start to FY24,” said Nitin Padmanabhan, analyst, Investec Securities. “This could bring down tier-1 growth expectations to 6-7% vs. 8% currently, leading to a potential contraction in PE multiples.”
