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Indian IT firms expect positive momentum in Q1 results

IT sector expected to maintain momentum over next few quarters


The Q1 results of Indian IT service firms are expected to indicate positive momentum and indicate growth in customer demand. The recent quarterly results of the US-based global technology firm Accenture has indicated that there has been broad base demand across verticals. 

Accenture's revenues rose 20.7 per cent YoY to $13.3 billion, well ahead of its guided range of $12.55-12.95 billion. Accenture has continued to gain market share and is seeing strong, broad-based demand across industries, services and geographic markets, resulting in an all-round beat in overall operating performance and strong order booking. 

As per a report by Motilal Oswal, the same is expected from the Indian IT services companies and the industry has seen significant traction recently, aided by the increased criticality of technology at large enterprises. 

The report from Motilal Oswal foresees a healthy demand environment for Indian companies from customers embarking on a digital transformation exercise. Accenture's strong growth and higher book to bill ratio in the outsourcing business resonates well for the Indian IT services industry. However, experts from Motilal Oswal feel that there could be an increase in attrition rates in the Indian remains and higher employee cost would put pressure on profitability. However, sustained growth rates are expected for the Indian IT sector for a longer period and growth is most likely to absorb the high cost of employees despite attrition. 

Market experts feel that a strong demand environment, sustained acceleration in revenue growth and robust order booking will support higher valuations for the Indian IT services companies. The Q4 recent quarterly results of Indian IT services companies such as TCS, Infosys and Wipro had indicated healthy growth with big deal wins marking a positive momentum for the sector. This momentum is expected to stay over the next few quarters as well. The beginning was made by TCS that reported revenue growth of 4.2 per cent QoQ (Quarter on Quarter) in constant currency terms in the 4Q FY21. The deal wins for the company in the quarter stood at $9.2 billion, the highest in its history. Infosys on the other hand had also reported constant currency (CC) dollar revenue growth of 2 per cent QoQ in Fy21, and new large deal wins of $9.3 billion versus total large deal wins of $9 billion in FY20. Wipro had also reported revenue growth of 3 per cent QoQ in CC terms in IT Services in Q4 FY21. The company also reported 12 large deals with a TCV (Total Contract Value) of $1.4 billion in 4QFY21. 

The Indian IT sector is expected to continue its healthy run as the National Association of Software and Services Companies (NASSCOM), has predicted that the Indian technology sector is expected to be worth $300-350 billion by 2025. A report brought about by NASSCOM titled 'Future of Technology Services – Winning in this decade' highlighted that India's technology services industry could accelerate growth by 2-4 per cent over the next five years, reaching $300-350 billion in annual revenues if it can win in the cloud, Artificial Intelligence (AI), cybersecurity, and other emerging technologies.

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