IT cos to log muted Q1 as macro woes persist; recovery may be gradual, say analysts

economictimes.indiatimes.com:

As tech companies head into Q1 earnings season this week, experts will also be keeping a close watch on any management commentary on the revision of the growth outlook for FY24, the spread of demand deterioration beyond BFSI (banking, financial services and insurance), hi-tech, telecom and retail verticals, net hiring, project ramp downs and pricing pressures, as key monitorables.Tata Consultancy Services (TCS) and HCL Tech are scheduled to declare their results on July 12, followed by Wipro's report card a day later (July 13). Infosys will announce its Q1 numbers on July 20, while LTIMindtree is slated to do so on July 17.

«Overall the weakness in demand should continue in Q1FY24 with a significant hit on discretionary spends. Clients continue to focus on cost and efficiency-driven projects, while keeping the non-critical projects on hold,» Motilal Oswal said in its note.

While the deal pipeline remains healthy, weak macro will continue to impact revenue conversions, creating near-term pressure on revenues. BFSI, retail, hi-tech, and manufacturing continue to exhibit sluggish performance.

The demand in the US has deteriorated due to increasing inflation and declining consumer spending, it said, noting that on the other hand, demand in Europe is relatively stable, similar to the levels in 4QFY23, and deal closures are progressing at a faster pace than in the US. «Our IT services coverage universe is expected to deliver a weak median revenue growth of 0.4 per cent QoQ and 5.3 per cent YoY in 1QFY24,» the brokerage said.

The demand remains intact for selective verticals and service lines, but there is a near-term weakness due to approval delays and heightened deal scrutiny. «These factors may result in project deferrals