TCS, Infy beat Street. That doesn't mean IT will have it easy
The results are out. Tata Consultancy Services (TCS) and Infosys have performed better than most analysts' expectated them to in the previous quarter.
TCS reported a profit after tax (PAT) of Rs 6,603 crore for the three months ended September - 4.51% more than the June quarter. Most analysts actually expected a marginal decline. But The firm added a client in the $50 million-plus category and six others in the $20 million-plus segment.India's largest IT firm, however, said net sales slipped 0.1% in the latest quarter to Rs 29,284 crore.
Following the TCS trend, Infosys on Friday reported a 4.95% quarter-on-quarter rise.
The Indian IT Sector has been on the downhill for some time. Currency volatility, macroeconomic headwinds and changing technology over the past two years have has taken its toll on the sector that largely relies on exports for growth.
The current year seems to be heading towards being the worst in a decade as companies like Infosys, TCS and Wipro have reported lacklustre growth in the first six months of the current financial year.
The June and September quarters are typically the strongest for the IT sector. In the June quarter, in constant currency terms, revenue for companies like TCS, Infosys , Wipro and HCL Technologies grew 3.1%, 1.7%, -0.2% and 3.3% respectively.
According to analysts, IT sector's growth in the current financial year will be constrained by broad-based weakness in the BFSI ( banking, financial services and insurance) vertical.
Economic Times quoted a Motilal Oswal report saying, "The seasonal strength that leads to strongest sequential growth in the September quarter is hardly expected to play out this time, as slowness in spending by the BFSI vertical weighs on the industry. In dollar terms, growth will be pegged back further by the sharp depreciation of the GBP (pound) v/s the US dollar".
Infosys Ltd cut its growth target to range between 10.5% and 12%. The company announced the loss of a large multimillion-pound deal with Royal Bank of Scotland in August 2016.
The slowdown in business has impacted Infosys in the form of an exodus of high-profile executives. In September this year, Sanjay Purohit, Executive Vice-president and Global Head of Consulting announced his exit from the company.
Purohit, an old timer at Infosys, was heading Edge Verve. Purohit was the seventh high-profile exit at Infosys since Vishal Sikka came on board as the Chief Executive of the company.
However, contrary to expectations, Infosys reported a QoQ jump in net profits in the results announced on today (Friday).
According to a media report, Infosys on Friday reported a 4.95 per cent quarter-on-quarter (QoQ) rise in net profit to Rs 3,606 for the quarter ended 30 September. The second largest domestic IT firm by sales had reported a net profit of Rs 3,436 crore in June quarter.
Recently, Cognizant announced an internal probe into whether "certain payments relating to facilities in India were made improperly and in possible violation of the US Foreign Corrupt Practices Act".
Post this announcement, the Cognizant stock fell by over 13% resulting in a loss of $4.5 billion in the company's market value.
Cognizant is a New Jersey-based firm but four out of every five of its employees are based out of India.
The company has downgraded its revenue forecast two times since January and currently has a guidance of between 8.5 and 9.5%.
Impact on jobs in India
India is a country comprising of mostly a young workforce. Every month 1 million youths join the ranks of job seekers. A slowdown in the IT sector will hit the Indian youth hard.
India Today quoted ex-president, of Nasscom, saying, "In the past, IT companies used to get six or seven-year-long outsourcing contracts, and they would bring in fresh hires and train them if needed. But now there is a big shift taking place. The proportion of project-based contracts is on the rise, so companies prefer to keep a thin bench."
The IT sector contributes around 10% to India's GDP. A tepid growth for the sector in the coming quarters will certainly have an impact on the overall growth rate of the country.
Edited by Jhinuk Sen