HCL Tech (L), Infosys (C) and Tata Consultancy Services (TCS) are set to share their Q4 results in AprilIANS/BCCL/BI India
After a blockbuster third quarter, analysts are bullish on the performance Indian IT companies between January to March as well.
Tata Consultancy Services (TCS), HCL Technologies, Infosys and others are expected to report the best fourth quarter in the last five years.
After Accenture’s increase in guidance, analysts are watching Indian players to see how they change their revenue outlook for the future.
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As 2021 unfolded, India’s information technology (IT) services majors including Tata Consultancy Services (TCS), HCL Technologies, Infosys, Wipro and Tech Mahindra — the top five players in the software and services industry — reported the best quarter in a decade.
It turns out that the market expects the following three months, January to March 2021, to be as exciting, if not better. This would be the best fourth quarter for the top-tier IT giants in the last five years, the analysts at Motilal Oswal said in a report dated April 4.
Broking firm
Jan-March growth estimate for tier-I IT companies
Motilal Oswal
2.5% to 3.4%
ICICI Direct
3% to 4.5%
HDFC Securities
3.9%
Edelweiss
2% to 6%
Growth estimates are in comparison to the earnings for the quarter ended December 2020
The consensus among IT analysts is that the previous record will be broken. After Accenture raised its full year guidance from 4-6% to 6.5-8.5% in US dollar terms, all eyes are now on how good the outlook is for others.
“The upward guidance revision by IT companies three quarters ago would be followed by upgrades in consensus forecasts for quarters to come,” said financial services firm Edelweiss in its April 1 report.
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Company
Annual revenue guidance for FY21
TCS
Does not give guidance
HCL Tech
2-3%
Wipro
1.5-3.5%
Infosys
4.5-5%
Tech Mahindra
Has not shared guidance
Not only are these companies continuing to rake in new deals, but a strong dollar — 2.99% rise in the value of the greenback in the last one year — means they will be pulling in higher revenue in rupee terms.
Company
New deals from January to March 2021
TCS
Vodafone, ThreeUK, Skanska
Infosys
Siemens, Toyota, Newmont, Google
HCL Tech
Airbus, Tenneco
Wipro
Capco, Ampion, Telefonica, Estee Lauder
Tech Mahindra
Telefonica, Perigord
Source: Media reports
The impact of wages hikes TCS, HCL Tech, Infosys and Wipro are likely to register a decline in margins due to the wage hikes announced between January and March.
Margins may also bear the impact of employees slowly returning to offices as the hybrid work model comes in play. This includes higher offshoring, lower subcontractor costs and structurally lower travel and marketing costs.
Company
Wage hike
Time of roll out
TCS
6-8%
March 2021
HCL tech
₹700 crore bonus
February 2021
Infosys
100% variable pay, salary increments and promotions
January 2021
Wipro
Wage hikes for junior employees
January 2021
Tech Mahindra
Salary hike
January 2021
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Meanwhile, the pandemic and the demand for contact-less solutions, both on the employee and customer front, are continuing to move up timelines of digital transformation. “Strong need for digital transformation, not only to structurally cut costs but also to deliver contact-less consumer and employee experiences,” said Nirmal Bang in its report dated March 19.
The stocks of TCS, HCL Tech, Infosys and others have already clocked in a greater quarter between January and March on the back of digital transformation and deal wins. Going forward, guidance may be the differentiating factor for where the share prices will be heading next.
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