Here's what you can expect from TCS, Infosys, Wipro and peers this quarter
- India’s top five IT companies are likely to see muted revenue growth for the last quarter of 2020.
- Margins will also dip as cross-currency tailwinds from the rupee losing its value won’t be enough to cushion the severity of the blow.
- A report by Edelweiss Broking forecasts that the pent-up demand during the lockdown period will bounce back strongly when things return to normal.
The halt of economic activity in India along with global containment measures to handle the Coronavirus pandemic could cause their cumulative quarterly revenues to dip by as much as 1.3% in constant currency, according to Edelweiss Broking, an Indian financial services company.
“We firmly believe that structurally there remains a lot of potential for the journey of organisations towards digital transformation. However, the current shutdown in the economy is unprecedented and uncertainty is the only constant,” said the report.
However, the worst hit, according to the broking firm, would be Wipro which could report a 1.9% decline in revenues while HCL Technologies may weather the storm and even grow 2.3% resulting in double-digit growth for the year. Infosys and TCS, on the other hand, may end the quarter in the green when it comes to revenues but will fall short of their double-digit targets.
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Apart from a muted growth in GDP in India, large parts of Europe and the US have been hit by the COVID-19 pandemic. This can have an effect on the number of deals that these companies can win in the future.
This quarter was supposed to be a decisive quarter for many IT majors who were hoping to reach their double-digit growth targets. This feat now seems unlikely. Moreover, margins are expected to decline by 0.1% to 0.6%. Even cross-currency tailwinds from the rupee losing its value won’t be enough to cushion the severity of the blow.
The report forecasts that the current scenario is likely to persist for the next six to nine months. However, the massive economies scale of large-cap companies will allow for per capita IT spending to keep inching upwards.
“We expect pent-up demand to bounce back strongly, leading to a spike in revenue in FY22,” said the report. It means that the clouds have silver linings around them, even if they seem far off right now.
AdvertisementThings to watch out for:
- Management commentary on how badly demand has been hit, especially in banking, financial services and insurance along with the retail sector.
- Commentary on management’s outlook for hi-tech, communication and telecom.
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