Goldman Sachs has downgraded India’s major IT services companies Tata Consultancy Services (TCS) and Infosys from ‘buy’ to ‘sell’ citing a potential slowdown in their dollar revenue growth amid impending global macroeconomic stress. However, it upgraded Wipro from ‘sell’ to ‘buy’ due to its attractive valuations and a recent pickup in its order book.
“The Indian IT sector benefitted from three secular tailwinds during the pandemic: outsourcing, offshoring and digitalization on the back of accelerated cloud migration. Given the upcoming macro slowdown (not recession) our macro team expects, which is percolating down multiple leading demand indicators, we believe Indian IT sector USD revenue growth will start to materially slow down from here, weighing on the secular tailwinds highlighted above. Hence, we cut our FY24E USD revenue growth forecast for the top 5 companies by 4ppt to 6 per cent yoy on average vs. our earlier forecast of 10 per cent,” Goldman analysts said in a note.
The domestic markets had a tumultuous start on Wednesday following a hotter-than-expected inflation report in the US that has diminished all hopes of any ease in the Fed’s monetary tightening. Frontline indices Nifty50 declined over 150 points to trade below 17,900 levels, whereas the S&P BSE Sensex slumped over 700 points to trade at 59,867 levels.
For the June 2022 quarter, TCS reported a consolidated net profit of Rs 9,478 crore, a jump of 5.2 per cent on a year-on-year basis. The company’s revenue during April-June 2022 rose 16.2 per cent to Rs 52,758 crore, compared with Rs 45,411 crore in the year-ago period. The company’s net profit had stood at Rs 9,031 crore in the corresponding period of the previous financial year.
Infosys reported a consolidated net profit of Rs 5,360 crore for the June 2022 quarter, a growth of 3.2 per cent as compared with Rs 5,195 crore in the year-ago quarter. The company’s revenue jumped 23.6 per cent to Rs 34,470 crore, against Rs 27,896 crore in the June 2021 quarter. Sequentially, Infosys’ net profit declined 5.7 per cent as compared with Rs 5,686 crore in the March 2022 quarter. On a quarter-on-quarter basis, its revenue rose 6.8 per cent during April-June 2022 as against Rs 32,276 crore in the preceding quarter.
Wipro reported its June quarter profit at Rs 2,563 crore, a dip of 20.9 per cent year-on-year. Wipro’s revenue for the quarter rose 17.9 per cent YoY to Rs 21,528.6 crore. Its operating margin in IT services segment decreased by 200 bps QoQ to 15 per cent. The consolidated total revenue for the Bengaluru-based IT company rose 15.51 per cent on year to Rs 22,001 crore as compared to the revenue of Rs 19,045 crore registered in the year-ago quarter. On a sequential basis, the revenue is higher by 2.98 per cent.
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