TCS results reflect IT industry is out of woods

IT services major Tata Consultancy Services (TCS) kickstarted the results season with a bang. Margin improvement, all round performance across verticals, sound deal pipeline and robust hiring are the key takeaways from TCS' earnings for the fourth quarter ended March 2021. Especially, a total contract value of $9.2 billion, which is the highest for any quarter of TCS, indicates the momentum in the technology outsourcing market. Though revenue in constant currency terms declined for the whole fiscal, it can be considered as a one-off event arising out of the Covid pandemic, which badly battered top line numbers in the first quarter of the company.

The most heartening signal of growth is the robust hiring done in the January-March quarter of last fiscal. TCS added 19,388 people during this period taking the total headcount addition to 40,185 in FY21. The total employee base of TCS now stands at 4.8 lakh strong. The Mumbai-headquartered firm also said it would hire around 40,000 freshers from campuses in the current financial year. This is good news for the engineering students pursuing their final year. After a dip in hiring during last fiscal, the company's intent of hiring more number of fresh graduates augurs well for the overall hiring outlook of the country.

After Accenture, world's third largest IT services company TCS also gave positive commentary on the growth outlook for 2021-22 period. The management said that the company is entering FY22 with much better visibility with double-digit growth prospects. Such commentary also indicates that large players like TCS are gaining market share in the outsourcing market - a trend which is likely to continue for a few more years. When the outlook given by Accenture and TCS are seen in tandem, it can be safely assumed that IT industry is out of woods as far as the negative impact of Covid is concerned. Also, depreciating rupee puts Indian IT firms in a good stead as rupee revenue will rise apart from expansion of margin in coming quarters.

Despite the good numbers, the stock performance of TCS remained subdued. Some experts pointed out that it was mostly due to high expectations from the company. The share price of TCS also had a stellar run during last year despite the pandemic.

After TCS, Infosys is the next company to announce its results on Wednesday, followed by Wipro. If the top four IT biggies give positive outlook on growth prospects, it will definitely be seen as a good indicator of hiring growth for this year. As these four companies employ more than 8 lakh employees with massive hiring of fresh engineering graduates, India will be at a safe place to push the GDP growth for the current financial year. Despite all the positive news, risks like rising wage cost in coming quarters, proposal of US government to increase the corporate taxation rates and the second wave of Covid pandemic have to be watched out for by the investors.