IT recovery graph mirrors that from a previous disaster. Can it withstand?

For the Indian IT services sector, the initial impact of the government and the recovery was almost identical to the impact during the global financial crisis (JRC). In both cases, quarterly revenues fell 6 to 7% immediately after the break and then increased by 15 to 16% from lows in one year of impact.

But the recovery from the global financial crisis has been underway for a long time. In the following two years, quarterly revenues for Tata Consultancy Services Ltd, Infosys Ltd, and Wipro Ltd increased by another 45%.

The question is whether these high numbers of growth can also be expected this time around. While there is no doubt that growth in this fiscal year will be high, given the relatively low base of the previous fiscal year, there is doubt that the high level of growth will remain outside FY22.

To begin with, Indian IT companies now operate on a much larger scale and the incremental dollar revenue needed is much higher for the same growth. For example, the three companies added quarterly sales of $ 1.8 billion between the quarters of March 2010 and March 2012, representing a growth of approximately 45%. For the same growth rate, these companies will need to add $ 5.2 billion in quarterly sales over the next two years.

In fact, Kotak Institutional Equities’ growth projections for the three companies point to quarterly sales growth of less than 3% organically over the next two years, well below the 4.7% growth recorded between March 2010 and March. 2012 quarters.

Some analysts believe that maintaining an average quarterly growth rate of around 2.5-3% over the next two years can be daunting. “The growth of the last quarter was driven by some mega transactions won by large IT companies. These moving, moving, and transforming agreements contain a high proportion of the on-site labor costs accepted by Indian companies. While this has resulted in impressive sales growth, it can potentially dilute margins and allow companies to execute these transactions with caution. Thus, there is no point in assuming a repeat of these initiatives, which means that growth may slow down, especially after the low base effect weakened in the June quarter, ”said an analyst at a local brokerage.

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