Indian IT firms set to clock 2-9% growth on strong deal momentum

Pune: India’s top-tier IT services companies are expected to post revenue growth of 2-9% sequentially and 15-20% from a year earlier in the fiscal first quarter, continuing the growth momentum seen in the past few quarters.

Much of the growth will be from new deals for digital transformation projects, according to analysts. While margins would be impacted to some extent due to wage hikes and increased hiring, this would be partially offset by a reduction in travel and other costs.

“Strong deal momentum (both pipeline and large deal bookings), broad-based industry-vertical trends towards digital transformation, positive cyclical indicators in product development/engineering services and consulting, accelerated hiring, and improving alignment with hyperscalers/SaaS indicate continuity of momentum for the sector,” Apurva Prasad, Amit Chandra and Vinesh Vala of HDFC Securities wrote in a report.


Motilal Oswal expects the impact of wage hikes on the margin to be in a 1-1.35 percentage point range for most companies.

Large IT firms are expected to post 2.1-3.9% growth sequentially, excluding acquisitions. For midcaps, the growth will be in a wider band of 2..8-6.3%, the brokerage firm said. In constant currency, or excluding the impact of exchange rates, Motilal Oswal expects median dollar revenue growth of 3.3% for the industry in the first quarter sequentially.

“Despite a high base effect in 2HFY21, a strong demand environment and deal wins should result in continued strength across large-cap and midcap IT companies,” it said.

Last month, Accenture reported a 21% increase in revenue and raised its outlook for the fiscal year. The multination’s performance is largely seen as an indicator of how Indian technology companies would perform. Tata Consultancy Services (TCS) will kick off the earning seasons for Indian IT companies on July 9, followed by Infosys on July 14 and Wipro on July 15.

Among the large companies, Dipesh Mehta of Emkay said Infosys was expected to raise its FY22 revenue growth guidance to 13-15% from 12-14% and HCL Technologies to retain its forecast of a double-digit expansion. Wipro is expected to guide for 5.5-7.5% constant currency QoQ revenue growth for Q2FY22. The company is expected to lead sectoral growth, helped by the Capco acquisition, followed by TCS, given the uptick in deals.

Analysts will be watching out of commentary on progression in the large deal pipeline, attrition and subcontracting status and performance and outlook on core verticals.

Companies like Infosys, HCL and L&T Technology Services, which had highlighted Covid-19 related uncertainty in their outlook in the previous quarter, are expected to provide better clarity on growth prospects for FY22.