IT giants Infosys, Wipro and Tech Mahindra are likely to see a decline in their respective year-on-year (YoY) and quarter to quarter (QoQ) revenue in the December quarter, according to a report by Kotak Institutional Equities.
“We expect a weak quarter for IT Services companies as furloughs, weak discretionary spending and project cuts impact performance. Three of the big five IT services companies should report a yoy and qoq decline in revenues in the December 2023E quarter, while growth for the other two will trickle down to low-single digits,” the report said.
Meanwhile, the growth for TCS and HCLT will likely stand at 0.5% and 4.3% on qoq and 1% and 2.2% on yoy comparison, the report said.
“High furloughs in the hi-tech and financial services verticals and the pruning of discretionary programs will lead to muted performance across companies. Infosys, Wipro and Tech Mahindra will likely report a yoy and qoq decline in revenues. Growth for TCS and HCLT will likely stand at 0.5% and 4.3% on qoq and 1% and 2.2% on yoy comparison. Mid-tier companies will have mixed trends in growth, with a declining slope of growth for all,” the report added.
According to the brokerage firm, the growth rate of Infosys is likely to decline by 1.9% YoY and 2.2% QoQ, Wipro to witness 6.9% YoY and 2.7% QoQ, TechM of 8.8% YoY and 1% QoQ, and MPhasis of 9.4% YoY and 0.5% QoQ.
“Expectations are high about a recovery in discretionary spending in CY2024E. Our analysis indicates that enterprises across most sectors are focused on cost-reduction priorities. Many have outlined cost-savings targets that stretch into 2024. The reprioritization of spends toward focus areas of investment is not yet complete. These do not inspire confidence in a significant recovery in discretionary spending, at least in 1HCY24. We do not think IT services management will comment about the CY2024 outlook yet,” the report stated.
Anticipations suggest a potential rebound in discretionary spending in the calendar year 2024; however, analysts from the brokerage assert that businesses across various sectors continue to prioritize cost-cutting measures.
It further added, “Expectations are high about a recovery in discretionary spending in CY2024E. Our analysis indicates that enterprises across most sectors are focused on cost-reduction priorities. Many have outlined cost-savings targets that stretch into 2024. The reprioritization of spends toward focus areas of investment is not yet complete. These do not inspire confidence in a significant recovery in discretionary spending, at least in 1HCY24. We do not think IT services managements will comment about CY2024 outlook yet.”
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