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Thursday, June 13, 2024

The growth rate of IT services is one of the lowest during the last ten years

<p>According to a research by Motilal Oswal Financial Services, the growth of the IT services sector is predicted to remain poor in 2QFY24 as macroeconomic uncertainty continues to have a negative impact on discretionary expenditure.<img decoding=”async” class=”alignnone wp-image-216506″ src=”https://www.theindiaprint.com/wp-content/uploads/2023/10/theindiaprint.com-the-growth-rate-of-it-services-is-one-of-the-lowest-during-the-last-ten-years-down.jpg” alt=”theindiaprint.com the growth rate of it services is one of the lowest during the last ten years down” width=”1178″ height=”784″ srcset=”https://www.theindiaprint.com/wp-content/uploads/2023/10/theindiaprint.com-the-growth-rate-of-it-services-is-one-of-the-lowest-during-the-last-ten-years-down.jpg 275w, https://www.theindiaprint.com/wp-content/uploads/2023/10/theindiaprint.com-the-growth-rate-of-it-services-is-one-of-the-lowest-during-the-last-ten-years-down-150×100.jpg 150w” sizes=”(max-width: 1178px) 100vw, 1178px” title=”The growth rate of IT services is one of the lowest during the last ten years 6″></p>
<p>There should be no appreciable evidence of improvement or worsening in Q2, and the general softness saw in Q1 should remain. According to the research, the IT Services coverage universe should see median revenue increase of 1.5% QoQ/5.7% YoY in 2QFY24.</p>
<p>Despite a little effect from FX swings, this growth rate is among the weakest seen over the last ten years. But improving margins in the second quarter should result from a focus on cost-control initiatives. The research said that because of the former’s appealing valuations, payout yield, and diverse portfolio, “we continue to prefer Tier-I players (TCS, HCLT, and INFO) over Tier-II.”</p>
<p>Even though Q2 is typically a strong season for the sector, the industry has seen an increase in order inflow over the last two months with an emphasis on cost efficiency. However, the slowdown in project-based business is anticipated to impede overall industry development.</p>
<p>We anticipate additional growth slowing in Tier 2 IT businesses, which might result in a closing of the valuation gap between Tier 1 (median P/E, 22x) and Tier 2 (median P/E, 27x), according to the research.</p>
<p>After the conclusion of pay increases, a general margin recovery is envisaged. Margin expansion in Q2 should be aided by a rigorous focus on cost-controlling initiatives.</p>
<p>Additionally, the FY24 salary increase cycles for a select few names (under tier-1) have been delayed. According to the research, this tactical choice is anticipated to strengthen margins in the near future.</p>
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