Upbeat guidance, weak rupee bode well for big IT

ET Intelligence Group: Top-tier Indian software exporters Infosys and sustained business momentum in the September quarter, reporting stronger growth compared with their larger peer Tata Consultancy Services (). In the near term, strong demand and weaker trend in the rupee will serve as tailwinds amid the challenge of higher employee attrition, which may put pressure on profitability.

Each of the three companies has guided for a strong business momentum in the coming quarters on account of a rising demand for digital solutions across geographies as the world gradually comes out of the grip of the pandemic amid rising vaccination and receding number of fresh infections. Among them,

and Wipro currently appear to be growing faster than TCS.

In each of the first two quarters of the current fiscal year, Infosys and Wipro reported above 4.5% sequential organic growth in the dollar revenues. On the other hand, growth was under 3% for TCS. As a result, TCS reported the lowest revenue growth of 19.1% in the first half of FY22 compared with 20.9% growth of Infosys and 27.6% growth of Wipro driven by its recent acquisitions.

While the overall sector demand looks strong, company-specific growth trend is likely to differ. Infosys, for instance, seems to be well placed given yet another upward revision in its full year revenue guidance. It now expects a constant currency growth of 16.5-17.5% in revenue compared with the estimate of 14-16% three months ago and much stronger than the 12-14% growth it guided for at the beginning of the fiscal year.

Wipro expects 2-4% sequential growth in the December quarter on the revenue of $2,580 million in the September quarter.

The trend in the employee addition of the three companies also reflects optimism despite rising attrition. Together, their net employee addition was at a record 1.5 lakh year on year in the September quarter. In the year-ago quarter, it was at record low of 10,314 amid the fast spreading first wave of the pandemic.

Over the past three months, stocks of TCS, Infosys, and Wipro have gained 15%, 11%, and 28%, respectively. Upbeat guidance and weakening rupee are expected to keep investors’ interest intact in the IT stocks. With expectations of a better growth from Infosys and Wipro, their valuation gap with TCS is likely to narrow in the near term.

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