Although IT companies have shown a slight improvement in market confidence after the US Federal Reserve announced a possible interest rate cut in 2024, analysts expect a turnaround in the coming quarters based on management’s comments on the demand environment.
During the fiscal third quarter ending in December, Tata Consultancy Services (TCS), India’s largest IT firm, reported 4% growth in revenue and 2% growth in profit compared to the same period last year. InfosysThe second-largest IT services company revised its revenue growth guidance for fiscal 2024 to 1.5-2.0% after experiencing a 7.3% decline in profit and 1% growth in revenue.
wiproIts profit declined by 12%, marking the fourth consecutive quarter of lower profit. Additionally, its revenue declined by 4.4%. In contrast, HCLTech saw 6.5% growth in revenue and 6.2% growth in profit.
Snapshot of TCS, Infosys’ Q3 earnings
However, IT sectorThe reported deal booking excited investors, resulting in a surge in IT stocks.
Peter Bender-Samuel, head of IT industry research firm Everest Group, has predicted a recovery in demand by the second quarter (April-June) of 2024 based on the current guidance of these IT companies. He said the next two quarters could be challenging due to hesitation in discretionary spending and new initiatives. However, he believes a modest recovery is likely to begin by the end of the second quarter (which is the first quarter of FY 2024-25 for Indian companies).
Phil Fursht, CEO of HFS Research, is optimistic about upcoming deals in the market and companies that will benefit from growth in the UK. Fersht noted that there are ongoing discussions about significant deals in the market, and there is a positive outlook for these deals to materialize over the next few quarters. He also noted increased activity in Europe, particularly the UK, which could result in substantial participation.
Snapshot of Wipro, HCLTech earnings
Despite a one-time provision of $125 million, Tata Consultancy Services continued to report industry-leading margins at 23.4%. BNP Paribas analyst Kumar Rakesh highlighted that recent strong deal wins have started to boost TCS’s revenue growth after a few stagnant quarters. Additionally, the company’s margin expansion is exceeding expectations. Rakesh was relieved by TCS’s optimistic stance on demand recovery, as the company sees pent-up demand for new technologies and expects the BFSI sector to improve in the coming quarter.
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