For IT firms, June quarter may be softer than Q4

(This story originally appeared in on May 29, 2023)

Analysts expect a softer June quarter for many IT companies compared to even the modest March quarter. Discretionary spending by clients in some verticals like banking and financial services and communications is still low, and the broad-based slowdown continues.

“Except Infosys, the June quarter could be weaker than the March quarter for many companies. We attribute the weakness to project pauses and cancellations in North America and select verticals such as banking and communications. The pause and cancellations materialised in February and accelerated in March. The full impact of this will be visible in the June 2023 quarter,” Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S and Vamshi Krishna have said.

They said though discretionary spending slowed down in North America and Europe, the former was more impacted. “Companies indicated that demand in North America was hit by the deterioration in macros, uncertain economic outlook and recent banking crisis…We expect demand in North America to continue to be weak in the first quarter of FY24,” they said.

ICICI Securities said Indian IT companies have indicated weakness in discretionary spends in retail, while essential retail is doing well. “Retail vertical revenue growth has been slowing down. However, deal wins reported by IT companies in this vertical have been resilient. TCS reported retail vertical deal TCV (total contract value) of $1.3bn (8% QoQ). Infosys’ management mentioned there is some pressure on discretionary tech spending, clients are prioritising investments in key areas such as e-commerce platforms, supply chain management systems and customer engagement tools,” the report said.

Kotak analysts said growth for IT services companies has been democratic in the past two years, as enterprises spent aggressively on digital journeys. “While digital spending will continue, a challenging environment will also force organisations to focus on costs.