Strong IT business recovery expected

2020-12-29 06:03:35

BENGALURU: The improvement that IT companies have been seeing after the slump in the June quarter is expected to continue in the December quarter and after. Accenture, which follows a September-August financial year, recently announced the first quarter results for fiscal year 2021 that lifted its share price by 7%. The company also revised its revenue guidance for the fiscal to 4%-6%, from its previously stated 2%-5%, reflecting accelerated spends in digital, cloud and security.
For Indian IT, which will announce numbers in January, it is expected to be similar. ICICI Securities analysts Sudheer Guntupalli and Hardik Sangani noted that barring a few cases, they expect furloughs to be less pronounced compared to a typical December quarter as enterprises come out of lockdowns.
“Secondly, while the September quarter witnessed a good demand recovery post revenue decline in the January-June quarter, the revenue run rate of many IT companies was still lower than the December quarter of the last financial year. To that extent, we expect the residual ‘come back’ to help growth in the December quarter. US dollar depreciation against GBP / Euro should add some cross-currency tailwinds,” they wrote. In the last three months, TCS‘s share price has risen 20% to Rs 2,928 a piece, and Infosys’s has risen 22.8% to Rs 1,240 a piece.

Gartner has forecast IT spending to total $3.8 trillion in 2021, an increase of 4% from 2020. IT spending in 2020 is expected to total $3.6 trillion, down 5.4% from 2019. Enterprise software is expected to have the strongest rebound in 2021 (7.2%) due to the acceleration of digitalisation efforts by enterprises supporting a remote workforce, delivering virtual services such as distance learning or telehealth, and leveraging hyper automation to ensure pandemic-driven demands are met.
ICICI Securities said that going forward, as investor focus shifts towards post-Covid growth acceleration, conversations around client IT spends, business confidence in Europe (25% of revenue, including UK), and margins in captive takeover deals will likely take the centre stage. Infosys recently took over part of Daimler’s captive IT business, a contract estimated at $3.2 billion over eight years. TCS acquired the staff and select assets of Pramerica Systems, a unit Prudential Financial. TCS also acquired a unit of Deutsche Bank. Wipro took over part of Metro’s IT assets.
“Over the previous 1-2 months, multiple tier-I firms announced IT captive takeover deals…On the back of these, reported deal win TCV (total contract value) may be very strong and should also translate into an upgrade in the revenue outlook for Q4FY21 / FY22,” Guntupalli and Sangani wrote.

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