IT Sector Takeaways: The Good, The Bad And The Ugly
While the IT sectors results so far were mixed, there are the key points that made the street happy or unhappy.
India's top five IT firms—TCS Ltd., Infosys Ltd., HCL Technologies Ltd., Wipro Ltd., and LTIMindtree Ltd.—recently announced their first-quarter earnings. The gist: Qualitatively, the demand environment remains unchanged, but the management is more confident about a stable and not deteriorating demand.
While the results were mixed, there are the key points that made the street happy or unhappy.
The Good
Infosys Raises Guidance, TCS Sees Lesser Deal Cancellations
The market turned euphoric after Infosys raised its fiscal 2025 guidance from 1-3% to 3-4%, which was due to in-tech acquisitions. Conversely, TCS, citing deferral deal closures, reported a lower number of deal cancellations this time compared to its previous experience.
Except for Wirpo, all five of the top companies experienced broad-based growth across verticals.
HCL Technologies' first quarter results mentioned "green shoots" in the Engineering, Research and Development segments.
Generative AI-based adoption is healthy among clients. They are laying the groundwork for the adoption of Gen AI-based solutions, according to LTIMindtree management.
The Bad
Unchanged Demand Environment
The IT sector is yet to see a recovery, with most of the companies acknowledging that there has been no change in the demand environment. Discretionary spending still remains weak. Deals for cost optimization are receiving priority over those for transformation.
Only LTIMindtree mentioned clients restarting the paused transformational projects.
The Ugly
Margins Still Under Pressure
Operating margin levers, such as subcontracting costs, have largely bottomed out for the top five IT companies. LTIMindtree mentioned that, other than pyramid optimization, the only margin lever would be broad growth, which would drive the margin.
Except for TCS, the other IT companies have yet to announce their wage hikes, which will put pressure on margins. So rather than improving, focus will remain on maintaining the margins.
Company Wise Key Qualitative Takeaways
The majority of companies reported that the demand environment remained unchanged. Wage hikes will affect most companies' margins in the upcoming quarters, with the exception of TCS, which has already implemented them. TCS predicts that the recovery will occur in the fourth quarter of fiscal 2025.
While the banking and financial services segment remains weak for most companies, Infosys and Wipro mentioned seeing early signs of an uptick in the segment.
