Profit margins at TCS, infosys, wipro and other tech companies under pressure for January-March due to record hiring and wage increases

  • Earnings season kicks off next week with results from major IT companies – TCS on April 11 and Infosys on April 13.
  • Digital transformation deals continue to drive growth in the IT sector, while the depreciation of the rupee over the past few months is benefiting the sector.
  • However, these companies’ profit margins are expected to come under pressure due to rising employee wages and record hiring.

The March quarter earnings season kicks off next week with earnings from major information technology (IT) companies such as Tata Consultancy Services (TCS) on April 11 and Infosys on April 13.

Most analysts believe that March is a seasonally weak quarter for IT companies and they expect moderate earnings growth amid margin pressures.

IT company profit margins are expected to be under pressure due to rising employee wages and record hiring.

“Indian IT’s sequential growth will be moderate in the March 2022 quarter and in line with historical seasonal trends. Margins will remain under pressure due to high salary increases, both on-premises and overseas,” Kotak said. Institutional Equities.

The entire IT industry is struggling to retain employees, including the top five companies. In fact, in the last quarter, more employees left Tech Mahindra than at TCS and Wipro.

The report adds that the talent shortage continues even as the industry has added a record number of newbies. The high cost of bridging attrition and retaining talent will impact business margins.

The best IT companies Expected revenue growth in January-March*
CDS 2.7%
Infosys 2.2%
Wipro 3.6%
HCL Technician 1.2%
Tech Mahindra 5.2%

Source: Emkay Research*Constant currency revenue growth on a sequential basis

Meanwhile, the growth momentum may continue due to healthy and widespread demand as companies around the world have increased their spending on new technologies. “The demand environment is currently robust. There could be moderate demand risk as the fallout from the Russian-Ukrainian imbroglio begins to impact key economies. Nonetheless, we believe double-digit growth is achievable for many,” said a report from Kotak Institutional Equities.

Rising payroll costs and the shortage of qualified talent will remain major short-term challenges for IT companies.

Investors will carefully watch management’s comments on any impact on technology spending from rising energy prices, inflation and the potential economic downturn, demand trends in key verticals such as banking , financial services and insurance (BFSI), retail, manufacturing and communications, and attrition rates.

The best IT companies Date of results
CDS April 11
Infosys April 13
Wipro April 29
HCL Technologies April 21th

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