InvestorQ : What are the IT results trends you see from the results of Infosys and TCS last week?
Dawn Cherian made post

What are the IT results trends you see from the results of Infosys and TCS last week?

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Mitali Bhutta answered.
1 month ago
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It looks like the technology stocks may be up against a rocky next few quarters if you go by the early indications given by the Infosys and TCS results. Firstly, sales growth of 15-20% is likely to be conditional. While digital shift is a reality, global headwinds like inflation and weak GDP growth will also mean limited pricing power for IT companies. Revenues are likely to grow but the ability of top line to drive profits is going to be restricted in coming days.

An important factor in the coming quarters will be the constant currency growth due to the likely impact of cross currency headwinds. Since large IT companies have business models that derive revenues from the Americas, UK and EU, monetary divergence could create a lot of cross currency risk for Indian IT companies. Like in this quarter, the cross currency headwinds are likely to curb constant currency growth for the large IT companies in India.

Above all, the margin pressures are unlikely to abate for now. Infosys and TCS took hits of 200-300 bps on EBITDA margins on account of a spike in manpower costs, operating costs and sub-contracting charges. Also, employee attrition touched 17% for TCS and 28% for Infosys which is almost unsustainable. Also, discretionary spend on global travel and visa charges are likely to come back this year. These are some major headwinds to watch for.

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