Indian IT firms likely to post healthy growth

Bengaluru: Indian IT services companies are likely to post healthy growth in top line during the third quarter (October-December) of ongoing fiscal year despite continuing headwinds owing to the Covid pandemic. According to brokerage firms, the margin expansion seen in the last quarter is also likely to continue in Q3 of FY21 as majority of employees continue to work from home (WFH).

Indian IT services providers are all set to announce their third quarter results from the second week of January 2021.

"In a seasonally soft quarter, we expect Indian IT to deliver strong sequential revenue growth led by fewer-than-usual furloughs and residual recovery from Covid-19 decline over first half of 2020,"ICICI Securities wrote in a note. It also noted that most IT biggies are likely to revise their revenue outlook upward for the whole fiscal year on the back of large deal wins. In 2020, a total of nine large deals have been clinched across sectors by domestic IT biggies. For instance, Wipro has bagged a $700-million digital and IT partnership contract with Metro AG as part of which it will take over the IT units of Metro AG - Metro-Nom GMBH in Germany and Metro Systems Romania SRL of the German wholesaler.

Similarly, Infosys has bagged its largest ever outsourcing deal worth around $3.2 billion from German automotive major Daimler this month. Under the contract, Infosys will undertake a massive infrastructure overhaul of the German firm. Market leader Tata Consultancy Services (TCS) acquired certain assets and employees of Pramerica Systems Ireland from insurance firm Prudential Financial Inc in November this year. Experts believe that such large deals and acquisition of captive centres will supplement the growth uptick in coming quarters.

In the third quarter, brokerage firms also noted that margin expansion would continue for most IT biggies and mid-tier firms on the back of low expenses.

"TCS and HCL Technologies (partly) rolled out wage hikes for their employees with effect from October 2020. For others, wage hikes are still due. Sequentially, we expect most of the cost elements to remain stable. On the back of this, margin profile should remain largely stable," said ICICI Securities. Apart from this, the depreciation of the rupee against the US dollar may partially aid operating margins, Kotak Institutional Equities said.

Brokerage firms also pointed out that global IT firm Accenture's recently announced results indicates a fair amount of recovery for the global IT industry and quarterly results of Indian IT firms are likely to reflect this trend.