While companies indicated little uptick in confidence in the market after the US Federal Reserve last month signalled multiple interest rate cuts in 2024, analysts expect a turnaround after this and the next quarters based on management commentary on the demand environment.
For the fiscal third quarter ended in December, India’s largest IT firm, Tata Consultancy Services, posted a 4% increase in revenue and 2% expansion in profit over the year-earlier period.
Its smaller rival, Infosys, tightened its revenue growth guidance for FY24 to 1.5-2.0% in the third revision of the estimate after reporting a 7.3% fall in profit and a 1% increase in revenue.
ETtechWipro’s profit fell 12%, making October-December the fourth consecutive quarter when it posted a lower profit, while revenue dropped by 4.4%.
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HCLTech’s revenue rose 6.5% and profit grew 6.2%. The deal bookings reported by the companies, however, enthused investors, leading to a rally in IT stocks.
ETtechIT industry research firm Everest Group’s chief, Peter Bendor-Samuel, expects a revival in demand by the second quarter (April-June) of 2024 based on the current guidance from the companies.
“We see the next two quarters as difficult with a continued hesitancy to commit to discretionary spending or large new initiatives. It is likely that by the end of the second quarter (first quarter for most Indian tech services firms) that we will see the start of a modest recovery,” said Bendor-Samuel.
HfS Research chief executive Phil Fersht believes that the companies will benefit from a host of upcoming deals in the market in addition to growth in the UK. There are some large deals in the market being discussed and there is a more positive view on deals coming to fruition over the next couple of quarters, said Fersht.
“There is also more activity in Europe, most specifically the UK, to get some large engagements over the line. As we look to Q4, the tailwinds are being driven but a generally more positive economic outlook, declining inflation, and a determination from some leading providers will bring more value in selected engagement bids,” he added.
TCS continued to report industry-leading margins at 23.4% despite a $125 million one-time provision.
After flattish revenue for the last three quarters, recent strong deal wins have now started driving TCS’ revenue back to growth. Margin expansion is also running ahead of expectations, BNP Paribas analyst Kumar Rakesh said in a note. “We found comfort in its more hopeful stance on a demand recovery as it is seeing pent-up demand for tech spending on new technologies and expects BFSI to recover in the coming quarter,” said Rakesh.
