With major Indian IT software services companies Tata Consultancy Services (TCS), Infosys Technologies, Wipro and Satyam Computer Services making their first quarter results public, it is evident that the IT industry has taken a hit due to adverse economic conditions.
Analysts expect this to continue in the next quarter and that the IT companies will resort to tightening theirbelts, as TCS has done with its costcutting measures and staff optimisation. Analysts in the industry believe that the slowdown in the US, weakening economies and skyrocketing oil prices will continue to impact theindustry.
The top line quarter-on-quarter growth in Q1FY09 recorded by TCS, Infosys, Wipro and Satyam were at 6%, 6.9%, 5.6% and 8.5%, respectively. ?We expect a similar trend in the second quarter. A better performance is expected in the third and the fourth quarter,? said KK Raman, executive director, KPMG. ?Inflation is a concern; however, improving rupee dollar relation is expected to make up for the impact. Things will be improving from the third quarter onwards,? he added.
TCS continues to face client-specific issues from the last quarter. Two of its top-10 clients that had delayed budget spend remained sluggish this quarter also. Apart from this, TCS saw a Latin American banking client cut discretionary spending due to restructuring.
Though, Infosys recorded a strong 28.7% y-o-y growth in its topline, the company?s core business growth was the slowest witnessed in many quarters. Volume growth in the IT services business stood at just 0.4% q-o-q (18.7% y-o-y). Pricing, on the other hand, was flat.
Wipro missed the forecasts with a 15% rise in the quarterly profit, while Satyam beat the forecasts with a 45% surge in earnings. But both firms were cautious about outsourcing prospects in the near term.
Anurag Purohit, a research analyst with Religare Securities, said, ?IT companies saw a marginal volume growth in this quarter. For companies like TCS and Satyam, there was a pressure on the margin and the billing rates have also gone down. This clearly indicates the impact of slowdown in the US?
?If the economic conditions remain sluggish, then the Indian IT companies that largely depend on BFSI clients, might not be able to meet thetopline guidelines. However, they might be able to meet bottomline guidance due to favourable currency movements. Therefore, they will now start looking at cautious steps like cost cutting,? said Manish Saighal, director-strategic & commercial intelligence, KPMG.