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IT firms bracing for muted show amid weak global macros, tight spends

While discretionary spends continue to be under pressure, there is no meaningful change in industry spending patterns

IT sector, IT companies, Deals

According to it, an uncertain macroeconomic outlook continues to dampen the demand environment for the IT services industry in 4QFY24

Press Trust of India New Delhi

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Indian IT companies are seen signing off FY24 on a subdued note with an uncertain global macroeconomic environment dragging tech demand and client spends, analysts said, forecasting modest commentary and cautious tone by the tech pack on FY25 outlook.

The grand IT earnings season opens on Friday with results of Tata Consultancy Services (TCS), followed by Infosys scorecard on April 18 and Wipro on April 19. Tech Mahindra is scheduled to announce Q4 and full-year numbers on April 25, whereas HCL Technologies will declare its numbers on April 26.

Emkay in its quarterly preview recently said subpar growth should persist in Q4 as muted demand trends continue on account of weak discretionary spending and cautious behavior by clients amid uncertain macros.

 

It predicted FY24 ending on a "weak footing", and noted that recovery hope has shifted to the second half of FY25.

"Global companies such as ACN (Accenture), CTSH (Cognizant Technology Solutions), and CAP (Capgemini) have also guided for muted growth, particularly during H1CY24 (first half of calendar year 2024), with recovery expected towards the end of CY24," it said.
 

Motilal Oswal, in its results preview for the sector, said while the sequential revenue growth for IT companies should see an improvement due to a low base of the December quarter (on account of seasonality), the year-on-year growth continues to remain "anemic".

According to it, an uncertain macroeconomic outlook continues to dampen the demand environment for the IT services industry in 4QFY24.

"This should result in the weakest sector annual growth (median growth of 4.9 per cent on year on year) since 2008-09 financial crisis (excluding pandemic impacted FY21)," Motilal Oswal said in its report.

While discretionary spends continue to be under pressure, there is no meaningful change in industry spending patterns.

"We factor in demand improvement in FY25 on the back of positive outlook from US fed and large order backlog; however, the certainty of this translating into tangible growth remains uncertain," it said.

While deal TCVs (total contract value) should remain stable to positive, conversion of deal wins into revenues continues to be pushed out due to adverse macros, leading to slower revenue conversion in the fourth quarter of FY24.

It has flagged continued weakness across major verticals and geographies and said BFSI (banking, financial services, and insurance), Retail, Hi-Tech, and Communications are expected to exercise greater caution and emphasise cost management.

"Given the limited clarity regarding demand recovery in both the US and Europe, the company commentary should maintain a cautious tone," Motilal Oswal note said.

Given the muted near-term demand with no meaningful sign of recovery in discretionary IT spends, it expects companies to provide modest commentary on the calendar 2024 budget cycle.

"Among Tier-I players, HCLT (HCL Technologies) is one of the key beneficiaries on having a defensive business mix, which should support the growth in the demand-constraint environment. Additionally, we expect TCS and Infosys to be a key beneficiary of the acceleration in digital and business transformation in the medium term," it said.

An industry watcher who did not wish to be named agreed that Q4FY24 will be "sedate" for the Indian IT industry in line with broad expectations as there has been no big news whatsoever on increase in spending nor cues on demand uptick.

US spends have been flat for a while as interest rates have not come down, the sector expert said adding that uncertainty on demand continues to persist.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Apr 11 2024 | 8:31 PM IST

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