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Strong Demand Sets Positive Growth Momentum for Indian IT Companies in Q1FY22
Strong Demand Sets Positive Growth Momentum for Indian IT Companies in Q1FY22

July 5, 2021

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In my last blog “Double Digit Growth a constant theme for FY22 - Indian IT Results Snapshot for TCS, Infosys and Wipro” we saw that the top IT companies reported strong fourth-quarter results for FY21 and are expecting a double-digit growth for FY22.

This expectation seems to have strengthened further after the recent quarter results released by Accenture which reported a 20.7% y-o-y growth in revenues to $13.3 billion surpassing its guidance of $12.55-12.95 billion. The company highlighted that it is witnessing strong demand across industries as well as geographic markets which forms the basis of its strong order book.

This trend sets a very positive tone for the 1QFY22 results of the Indian IT companies which are expected to start releasing their results later this month.

Expectations for strong revenue growth

Revenues for 1QFY22 is expected to maintain the q-o-q growth in the range of 3-4% as witnessed over the last two quarters owing to a strong demand environment which is also reflected in the optimistic deal pipeline numbers reported last quarter:

  • Indian IT companies together reported a strong deal pipeline of over US$16 billion during 4QFY21, while for full-year FY21 the comparable number crossed US$50 billion.

                                                                         Top Companies' Revenue Growth

                                     Source: Company Reports and NASSCOM Analysis

This expectation is also supported by the fact that the second-wave of Covid-19 had minimal impact on the supply side as the majority of the workforce was working from home and distributed across locations.

Operating margins expected to maintain the downtrend amidst an inching attrition

Margins will see a downtrend (~100 bps) considering wage hikes and hiring will continue - a common trend across companies over the last couple of months, which in turn is fuelled by an inching attrition rate – which started to rise last quarter after hitting the lowest levels in 3QFY21. Moreover, considering the strong demand for talent in new-age skills, an uptrend in attrition is expected to be maintained this quarter as well.

                                    Source: Company Reports and NASSCOM Analysis

 

Growth expectations will support profitability

Sustained growth rates are expected for the segment over the coming quarters as technology remains at the forefront of customer priorities. This growth will absorb the increase in the cost of employees maintaining profitability across companies. Overall, we maintain a positive outlook for large as well as the majority of mid-tier companies in the sector.

Read more details on how the operating matrix shifted across the Indian technology companies and the aggregate numbers for the quarter in our latest Quarterly Industry Review for 4QFY21. Stay tuned for more updates on Industry Performance at NASSCOM Community.

 

 

 


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Neha Jain
Senior Analyst

Neha Jain

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