Key highlights:
Over the last month, India’s top IT firms have announced their quarterly results for Oct-Dec quarter. A quick look at the results show flat to negative growth in revenue for the calendar year. However, gross margins for most firms (except Cognizant) have remained stable or increased in 2023 over the previous year.
Notwithstanding the muted growth, the industry is seeing some green shoots that indicate that the demand environment may improve over the next 3-4 quarters. The Oct-Dec quarter saw a record-high TCV of deal wins, aided by a strong flow of mega deals, driven by infrastructure optimization initiatives of clients.
Companies have also enacted several measures on the operations side such as increasing utilization measures and controlling attrition, thereby maintaining or increasing gross margins.
Retention has increased significantly from 75% levels in the first half of 2023 to 85% in the last quarter. Moreover, hiring in the industry is expected to remain muted over the next two to three quarters. We expect the IT job market to remain challenging throughout 2024 due to cost optimization being undertaken by Indian start up sector and large software vendors such Google, Microsoft and Salesforce.
Strong orderbook coming through from the Oct-Dec quarter:
TCS’ order book stood at $8.1bn, witnessing a double-digit growth in LTM TCV. During the quarter they delivered services to BSNL 4G, 5G network-related equipment. They are also executing this project as a system integrator partnering with other OEMs. Geographically, India led the growth in revenue with 23.4%, while North America business declined by 3%.
Infosys won deals worth $13bn in the third quarter, which is the highest it has been in any period. Topaz – Infosys’ gen AI program is seeing strong traction, with integration of gen AI components into their service line portfolio. They have also trained 100k employees in GenAI, along with developing use cases across different industries. Clients are leveraging Topaz combined with the cloud capabilities in Cobalt.
HCL Tech’s software product strategy continues to focus on creating and embedding AI, specifically GenAI. In an uncertain demand environment, the company remains confident of their growth.