Traditionally, December is a subdued quarter on account of the holiday season and fewer working days, and one did not expect wonders from the industry.
HYDERABAD: On the surface, the Q3 earnings season may seem to be going as per the script for the IT sector. But clearly after the numbers from the big three there is an undercurrent of concern with the cautious commentary on US budgets pointing to possible hiccups Q4 onwards.
Traditionally, December is a subdued quarter on account of the holiday season and fewer working days, and one did not expect wonders from the industry.
The much anticipated event this season then was the industry’s remarks on traction from the US and IT budgets going into the new year in the backdrop of the US sub-prime crisis and the makings of a slow down in the economy.
Coming on top of the rupee-dollar exchange woes, an adverse US scenario could be the proverbial last straw on the camel’s back.
Both Infosys and TCS have maintained there are no visible signs of a slowdown in demand, cuts in IT spending or project delays on account of a perceived US credit crunch.
But Infy was quick to add that clients seemed to have postponed their decision to early February. TCS on the other hand said it was cautious of the negative news flow from the US on BFSI (banking, financial services and insurance) companies writing off their losses.
Though Wipro too maintained a similar line it was the only one to indicate that it is not all hunky dory. IT budgets have tended to remain flattish, said Girish Paranjpe, president, finance solutions.
Clients are in the process of prioritising their spending while some have curtailed spends. But this does not mean offshoring will be affected, he hastened to add in an analyst call, adding that a clearer picture will emerge at the end of the quarter.
The big three may be putting up a brave face, but the writing is clearly on the wall and the Q3 numbers show all is not well for the industry, point out analysts.
For instance Infy’s 25.5% year-on-year volume growth is the lowest ever in more than nearly four years and the 4.5% QoQ growth is the slowest in the past five years.
TCS too has some concerns with business volumes from the US growing a meager 0.7% during the quarter, bringing down the growth in overall international to just 4%, the slowest December quarter in five years for the company.
Meanwhile, Wipro reported an overall volume growth of 6.4% but the 11% growth in net profit was the slowest in the last three years.
Putting out a sell call on Infosys, IIFL analysts Anuriddha Dange and Sandeep Muthangi said uncertainty over the spending environment remains.
In contrast to the management’s apparent optimism, the outlook on the IT industry is unfavourable and we believe the worsening situation could necessitate rate and spending cuts at major clients, they said adding Infosys could see risks to its pricing power in 2008.
On the brighter side, however, all the three said business from BFSI clients increased. While Infosys won five new deals in the segment which saw revenues going up 7% QoQ, TCS reported a 5% growth in BFSI in line with the company growth in Q3.
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