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Indian IT sector on a strong wicket, sector revenue likely to clock 2-9% growth

With technology becoming the main catalyst for business growth amid the Covid-19 pandemic outbreak, the IT companies are likely to get into expansion mode with growth coming from new deals

The Indian IT sector has picked the fast lane of growth. The top IT services companies are likely to witness revenue growth swell by 2-9% sequentially and 15-20% from a year earlier in the fiscal first quarter, an HDFC Securities report said adding that the growth momentum for the sector will continue to be up.

According to the report, with technology becoming the main catalyst for business growth amid the Covid-19 pandemic outbreak, IT companies are likely to get into expansion mode with growth coming from new deals for digital transformation projects.

“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/ indicate continuity of momentum for the sector,” Apurva Prasad, Amit Chandra and Vinesh Vala of HDFC Securities wrote in a report.

Meanwhile, Motilal Oswal expects the impact of wage hikes on the margin to be in a 1-1.35 percentage point range for most companies. While the 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’s results showed, Accenture gaining up to 21% in the revenues. 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 earnings seasons for Indian IT companies on July 9, followed by Infosys on July 14 and Wipro on July 15.

Among the large companies, Infosys was expected to raise its FY22 revenue growth outlook 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.

Companies including 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

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