<p>The demand environment for the Indian IT industry remains robust for the current financial year with a strong deal pipeline, prompting a few to raise their annual revenue growth guidance. The second-quarter performance of the top five IT services firms also reflects that broad-based geographical and vertical-led growth is coming back for the industry as the impact of the Covid-19 pandemic fades.</p>.<p>However, concerns over acute shortage of talent, high attrition numbers, and pressure on operating margin remain. Also, there is a fair amount of uncertainty over how the next year’s IT spending budgets will pan out along with the impact of a hybrid work environment on productivity as most IT firms are readying to bring back a major chunk of their employees to offices.</p>.<p>“Demand environment for the global IT industry remains strong. Especially, spending on digital services is rising, which is being cashed in by Indian IT services companies. Despite a near absence of mega-deals, the total contract values (TCV) of large firms have not dipped much on a sequential basis. Also, raising of revenue guidance by some large and mid-tier firms indicate confidence in delivery abilities despite the supply-side constraints,” said Pareekh Jain, an IT outsourcing advisor and Founder of Pareekh Consulting.</p>.<p><strong>Also Read | <a href="https://www.deccanherald.com/business/business-news/it-firms-average-attrition-rate-hits-17-1042925.html" target="_blank">IT firms' average attrition rate hits 17%</a></strong></p>.<p>All the top five large firms- Tata Consultancy Services, Infosys, HCL Technologies, Wipro and Tech Mahindra- are expecting to clock double-digit revenue growth in FY22. Among the top five, Infosys has raised its revenue growth guidance to 16.5-17.5% for this fiscal year. Such growth projections have come owing to a strong deal pipeline through mega deals gave a miss during the second quarter.</p>.<p>In the quarter ended September, Infosys won 22 deals worth $2.15 billion in the July-September period, compared with $2.6 billion in the previous quarter. The total contract value (TCV) of Tata Consultancy Services (TCS) was at $7.6 billion during the second quarter, down from $8.1 billion in the June quarter. Wipro signed 9 large deals this quarter with TCV of around $580 million as compared to $715 million in Q1. Similarly, HCL Technologies’ TCV for the September quarter stood at $2.3 billion with 14 large deal wins. The net new deals for Tech Mahindra for the second quarter came in at $750 million.</p>.<p>However, analysts pointed out that the sustainability of double-digit growth in FY23 and beyond will hinge on bagging the large deals, which remained the mainstay of pushing the revenue growth to a higher trajectory. </p>.<p>“Barring a few exceptions, we expect the growth rate of the industry to revert to pre-covid levels as the base effect normalizes and one-off distortions cease in the post-covid equilibrium,” ICICI Securities wrote in a note. </p>.<p class="CrossHead"><strong>Attrition continues unabated, margin pressure likely</strong></p>.<p>Employee attrition numbers continue to remain elevated with no signs of an end to the current talent war. All the top five IT firms see their attrition numbers rising in the second quarter as compared to the previous one.</p>.<p>For Infosys, Wipro, and Tech Mahindra, the attrition numbers remained more than 20% in Q2. The lowest attrition rate was reported by TCS at 11.9%, among the five, despite witnessing a rise sequentially. Such high attrition is the key area of concern for the Indian IT industry as supply-side constraints may derail delivery capabilities.</p>.<p>Also, as wage cost rises for the retention of talent, this is likely to pressure on operating margins. Though all top IT firms had done a good job in defending their margin levels in Q2, sustaining these levels will be difficult as travel and other office expenses (categorised as Selling, General & Administrative Expenses) resume with normalcy coming back.</p>.<p>“Despite partial wage hikes and supply-side cost pressures, all companies reported impressive margin defence. A further shift of effort mix towards offshore and step up in utilization helped, a trend which is unlikely to sustain as travel & office resume,” wrote ICICI Securities.</p>.<p>However, with aggressive hiring plans of freshers, industry officials are of the view that the supply-side challenges will subside in the next two-three quarters. This will not only reduce wage and related costs but also help in lowering expenses coming from deploying subcontractors to get the project work done. The top four IT firms plan to hire 1,60,000 freshers in FY22 as part of their campus hiring plans. </p>.<p class="CrossHead"><strong>Uncharted territory</strong></p>.<p>All large IT firms are planning to bring back a substantial number of their employees to offices starting from January next year. This shift from remote working model to hybrid operating model - wherein employees will work twice or thrice from offices - is a completely new experiment for IT companies. So the dynamics of this model will evolve with time. Though there are no known concerns so far from companies with regard to this shift, it is to be seen how soon they can readjust to this new operating model. The second-quarter results reflect the confidence of Indian IT firms to ride the offshoring wave.</p>.<p>But IT budgets of clients, which will be finalised during this quarter, will provide credence to the evergreen growth story.</p>.<p><strong>Check out latest DH videos here</strong></p>
<p>The demand environment for the Indian IT industry remains robust for the current financial year with a strong deal pipeline, prompting a few to raise their annual revenue growth guidance. The second-quarter performance of the top five IT services firms also reflects that broad-based geographical and vertical-led growth is coming back for the industry as the impact of the Covid-19 pandemic fades.</p>.<p>However, concerns over acute shortage of talent, high attrition numbers, and pressure on operating margin remain. Also, there is a fair amount of uncertainty over how the next year’s IT spending budgets will pan out along with the impact of a hybrid work environment on productivity as most IT firms are readying to bring back a major chunk of their employees to offices.</p>.<p>“Demand environment for the global IT industry remains strong. Especially, spending on digital services is rising, which is being cashed in by Indian IT services companies. Despite a near absence of mega-deals, the total contract values (TCV) of large firms have not dipped much on a sequential basis. Also, raising of revenue guidance by some large and mid-tier firms indicate confidence in delivery abilities despite the supply-side constraints,” said Pareekh Jain, an IT outsourcing advisor and Founder of Pareekh Consulting.</p>.<p><strong>Also Read | <a href="https://www.deccanherald.com/business/business-news/it-firms-average-attrition-rate-hits-17-1042925.html" target="_blank">IT firms' average attrition rate hits 17%</a></strong></p>.<p>All the top five large firms- Tata Consultancy Services, Infosys, HCL Technologies, Wipro and Tech Mahindra- are expecting to clock double-digit revenue growth in FY22. Among the top five, Infosys has raised its revenue growth guidance to 16.5-17.5% for this fiscal year. Such growth projections have come owing to a strong deal pipeline through mega deals gave a miss during the second quarter.</p>.<p>In the quarter ended September, Infosys won 22 deals worth $2.15 billion in the July-September period, compared with $2.6 billion in the previous quarter. The total contract value (TCV) of Tata Consultancy Services (TCS) was at $7.6 billion during the second quarter, down from $8.1 billion in the June quarter. Wipro signed 9 large deals this quarter with TCV of around $580 million as compared to $715 million in Q1. Similarly, HCL Technologies’ TCV for the September quarter stood at $2.3 billion with 14 large deal wins. The net new deals for Tech Mahindra for the second quarter came in at $750 million.</p>.<p>However, analysts pointed out that the sustainability of double-digit growth in FY23 and beyond will hinge on bagging the large deals, which remained the mainstay of pushing the revenue growth to a higher trajectory. </p>.<p>“Barring a few exceptions, we expect the growth rate of the industry to revert to pre-covid levels as the base effect normalizes and one-off distortions cease in the post-covid equilibrium,” ICICI Securities wrote in a note. </p>.<p class="CrossHead"><strong>Attrition continues unabated, margin pressure likely</strong></p>.<p>Employee attrition numbers continue to remain elevated with no signs of an end to the current talent war. All the top five IT firms see their attrition numbers rising in the second quarter as compared to the previous one.</p>.<p>For Infosys, Wipro, and Tech Mahindra, the attrition numbers remained more than 20% in Q2. The lowest attrition rate was reported by TCS at 11.9%, among the five, despite witnessing a rise sequentially. Such high attrition is the key area of concern for the Indian IT industry as supply-side constraints may derail delivery capabilities.</p>.<p>Also, as wage cost rises for the retention of talent, this is likely to pressure on operating margins. Though all top IT firms had done a good job in defending their margin levels in Q2, sustaining these levels will be difficult as travel and other office expenses (categorised as Selling, General & Administrative Expenses) resume with normalcy coming back.</p>.<p>“Despite partial wage hikes and supply-side cost pressures, all companies reported impressive margin defence. A further shift of effort mix towards offshore and step up in utilization helped, a trend which is unlikely to sustain as travel & office resume,” wrote ICICI Securities.</p>.<p>However, with aggressive hiring plans of freshers, industry officials are of the view that the supply-side challenges will subside in the next two-three quarters. This will not only reduce wage and related costs but also help in lowering expenses coming from deploying subcontractors to get the project work done. The top four IT firms plan to hire 1,60,000 freshers in FY22 as part of their campus hiring plans. </p>.<p class="CrossHead"><strong>Uncharted territory</strong></p>.<p>All large IT firms are planning to bring back a substantial number of their employees to offices starting from January next year. This shift from remote working model to hybrid operating model - wherein employees will work twice or thrice from offices - is a completely new experiment for IT companies. So the dynamics of this model will evolve with time. Though there are no known concerns so far from companies with regard to this shift, it is to be seen how soon they can readjust to this new operating model. The second-quarter results reflect the confidence of Indian IT firms to ride the offshoring wave.</p>.<p>But IT budgets of clients, which will be finalised during this quarter, will provide credence to the evergreen growth story.</p>.<p><strong>Check out latest DH videos here</strong></p>
