IT Sector to report a strong growth in Q1FY23
With the exception of a few organizations experiencing difficulties because of company-specific events, the growth of Indian IT companies is expected to pick up in Q1. As this is the first quarter of full execution following the major/minor impact of furlough in Q3 and Q4, respectively, the deal execution typically picks up in Q1 of each year.
However, on a QoQ basis, margins are anticipated to suffer as a result of some companies' annual cycle of salary increases and others' rationalization of labor expenditures. The cost of obtaining visas and the rise in travel-related expenses as the economy expands will also have an impact on margins. The sustained transaction momentum led by industries like BFSI, insurance, etc. is likely to boost the demand environment, but we must keep an eye on how geopolitical and macroeconomic concerns develop, particularly in H2FY23, which is anticipated to set the tone for FY24 results.
Cross-currency headwinds would result from adverse currency movements and are anticipated to have an impact on dollar revenues for the quarter. The weakening of the rupee against the dollar is anticipated to help rupee revenues for the quarter.
The key information to pay attention to in the upcoming quarter will be commenting on growth prospects and the effect of macroeconomic factors on some of its major clients' tech investments. remarks on margin forecast, hiring & attrition trends, etc.
Although Accenture's outsourcing division (a proxy for Indian IT) reported good revenue growth in Q3, new deal signings have slowed down in the past two to three quarters (albeit on a high base). For Accenture to have improved revenue visibility in the next quarters, the number of new bookings must increase. Continuous investments in cutting-edge technologies, such as cloud transformation (Accenture maintains that 30–40% of applications have been moved to the cloud, suggesting that cloud transformation has a long tail ahead of it), AI/ML, and blockchain [as per CB insights, blockchain companies have already invested US$25 billion in CY21] are expected to further boost demand in the upcoming quarters.
Constant currency (CC) revenue growth for TCS, Infosys, and Wipro is expected to range from 2.5 to 4.5 percent QoQ, while HCL Technologies is anticipated to register modest growth of 2.0 percent QoQ as a result of the ongoing difficulty in the P&P business and the subdued IT services market.
Due to the seasonal slowdown in its Comviva business, Tech Mahindra is also expected to report a 2 percent QoQ sales growth.
In the absence of pass-through revenues (2-2.5 percent impact), L&T Infotech is anticipated to report a QoQ constant currency increase of 3% for the quarter.
With the exception of the retail sector, growth across the travel, BFSI, and insurance verticals is expected to help Mindtree record 5 percent constant currency growth.
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