Analysts tracking the IT sector expect slow growth for the software services industry, despite the July-September quarter being the strongest quarter traditionally for Indian IT services companies. Tata Consultancy Services (TCS) kicks off the second-quarter results season on Oct. 13.
The gloomy forecast is attributed to the slowdown in healthcare and banking and financial services (BFS) segments, project delays with clients, Britain’s impending exit from the European Union, wage increases and cuts in discretionary spending by customers.
“Seasonal strength will be missing in the results for the September quarter in view of a general weakness in financial services, project delays and cancellations by many clients,” said Kawaljeet Saluja, an analyst at Kotak Institutional Equities.
India’s second-largest IT services company Infosys is set to announce its results on Oct. 14 while the announcements from Wipro, Mindtree and HCL Technologies are slated for Oct. 21.
According to ICICI Securities the top-five IT services companies are expected to witness their slowest sequential Q2 growth in the past decade.
“The revenues at the top-5 large cap companies in our coverage universe are expected to grow by just 1.5 per cent QoQ in Q2FY17 — which is the slowest Q2 growth in the past decade,” Kuldeep Koul of ICICI Securities wrote in a research report. “HCL Tech and Infosys to lead in revenue growth amongst the large caps; Wipro to lag,” he wrote in the report.
The margins are also likely to decline quarter on quarter (QoQ) in aggregate for the top five given the adverse changes in currency, revenue growth below expectations and the impact of higher salary payouts.
“Margins are likely to decline for HCL Tech and Wipro due to wage hikes, stay flattish for Tech Mahindra due to one-time employee restructuring expense, and for Infosys given the impact from options expensing, and grow modestly for TCS on operational efficiencies,” Mr. Koul wrote.
IT majors such as TCS and Infosys have already expressed concern over their second-quarter performances citing various factors.
Bengaluru-based Infosys had, in July, lowered its full-year revenue forecast and some analysts expect Infosys to further revise downward its FY17 guidance. Royal Bank of Scotland’s project cancellation is also likely to affect the software-services provider’s performance.
Mid-tier IT company Mindtree also revised its Q2 guidance downward due to cross-currency movements and project cancellations.