Lower top line growth likely for IT cos in Q2

We have seen many large deals being bagged by big IT firms. This is to be seen whether the large deals are adding to the revenue or project ramp ups are still getting delayed. Similarly, margin continues to be under pressure. All eyes will be on how margin profile moves in coming quarters -- Pareekh Jain, founder, Pareekh Consulting, tells Bizz Buzz

Bleak Outlook

♦ Most IT firms likely to report subdued revenue growth in Q2

♦ Hiring sentiment among companies remains low

♦ No second half recovery on cards for Indian IT industry

Bengaluru: Demand outlook, large deal flow, hiring trend and margin movement will be under sharp focus of investors and industry watchers as Indian IT services companies are all set to announce the second quarter results from next week.

Market leader Tata Consultancy Services (TCS) will announce its second quarter results on October 11. Infosys will follow suit with announcement of Q2 results on October 12.

“Investors will look at the commentary of management on the overall demand environment. We have seen many large deals being bagged by big IT firms. This is to be seen whether the large deals are adding to the revenue or project ramp ups are still getting delayed. Similarly, margin continues to be under pressure. All eyes will be on how margin profile moves in coming quarters,” said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting. Headcount addition, especially fresher hiring are the areas that will be under the focus of industry watchers.

“Headcount addition is usually considered as the lead indicator of demand projection. Many of the IT firms are shying away from fresher hiring at this point of time. It is to be seen how companies navigating the human resources space,” said a source operating in staffing space.

Most brokerage firms have projected tepid revenue growth in the second quarter for most IT firms. They have also guided for low employee addition owing to low chances of revival in demand.

Earlier, JPMorgan analysts have predicted that current financial year will be a washout year. “We remain negative on the sector as we haven’t seen a meaningful uptick in demand in our recent checks. We think the overall setup is not as positive as last quarter,” analysts Ankur Rudra and Bhavik Mehta said in a note last week.

“Investors have assumed FY24 is a washout and shifted focus to FY25, hoping for a rebound,” the analysts added.

Last month, Accenture’s revenue guidance has reflected no signs of demand revival in the near future. The company, which follows a September-August financial year cycle, posted overall revenue of $16.56 billion in the third quarter, a growth of five per cent over the same period last year inconstant currency term.

While its managed services saw a 13 per cent growth, there was adecline of one per cent in consulting segment. Accenture’s growth in managed servicesspace is taken as the benchmark for Indian IT services industry. According to analysts, operating margins will continue to remain under pressure during the second quarter.