TCS Q1 results to set stage for IT earnings

Fears of a global recession, especially in the US and Europe, are mounting by the day. Yet, analysts expect Indian IT companies to post steady performance for the April-June quarter.

IT major TCS, for instance, may report modest revenue growth later today, led by seasonal strength and robust digital transformation projects.

Omkar Tanksale, Senior Research Analyst, Axis Securities says TCS to report 3.4% sequential revenue growth in rupee terms. Strong IT services demand is likely to remain intact and we can expect margins to decline between 80-100 bps QoQ. 

Not just TCS, but the entire industry is expected to see the long-standing pain of margin decline due to unabated supply-side pressures, as per experts.

Besides, they believe quarterly revenue growth may have varied for companies due to seasonal factors.

Speaking to Business Standard, Ashis Dash, IT analyst, Sharekhan by BNP Paribas says, we can expect a steady Q1 for IT sector. Infosys, TCS are likely to see strong revenue growth in Constant Currency. Weak seasonality to dent Tech M, Wipro’s revenue growth. Higher travel expenses, retention costs to erode EBIT sequentially across companies.

Kotak Institutional Equities pegs revenue growth on yearly basis to range from 2-4.5% for tier-1 and 3-5% for mid-tier companies. EBIT margins, meanwhile, could decline 70-400 bps YoY.

That said, despite a strong near-term demand outlook, analysts caution that risks to long-term growth have increased significantly.

Analysts at Motilal Oswal anticipate the impact to be felt in the second half of FY23 and in FY24.

The brokerage has trimmed its FY23 and FY24 EPS estimate for the sector by 2-5%, despite a positive 300-400 bps impact from weaker rupee.

On the bourses, market experts believe that related stocks haven't completely priced-in a recessionary environment.

According to Motilal Oswal, near-term pressure on valuations will continue as the worsening macro commentary is likely to impact industry deal flow and revenue over the next few quarters.

However, it suggests investors utilize any consequent correction to raise allocation to the sector.

Apart from corporate earnings, investors will monitor the US employment data for market trajectory today.