Europe's manufacturing woes to get over in the next few months, says Ravi Menon of Macquarie

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Macquarie Capital's Ravi Menon said Tata Consultancy Services (TCS) has higher exposure to life and annuity insurance applications. In an interview with CNBC-TV18, Menon shared his views on the outlook of TCS and Infosys's share buyback proposal.

He said, "People are worried about the net hiring being weak and that being an indication of poor demand. I don’t think that. We think they have built a big buffer of bench, if you come from pre-COVID to now. They are at nearly 38 percent of headcount while revenue is up by only 23 percent."

TCS on Monday said its attrition rate in the July-September period had jumped to 21.5 percent versus 19.70 percent quarter-on-quarter.

Menon also opined that Europe's manufacturing woes will get over in the next few months while adding that Infosys has a large part of deals in Europe.

Looking at TCS' margin picture which was reported at 24 percent but had a currency impact on it, Menon said, "The currency does play a role in this. You'll have at least another 200-300 basis points at revenue utilisation and that will flow down straight to the markets which then gets back to the 26-28 percent band."

He also added that as attrition starts coming down, naturally margin would start moving up.

TCS reported an annualised 8.4 percent growth in net income at Rs 10,431 crore for the September quarter. The Tata Group company said its total revenue from services grew at a much faster pace of 18 percent to touch Rs 54,309 crore in the period under review.

Discussing companies with the highest exposure to insurance, Menon informed that TCS is a little bit higher in that regard. "Especially because they are insuring banks as well but that is primarily on the life and annuity side."

Also commenting on the delaying of the hiring process in regards to Wipro, Infosys, HCL Tech and the likes, Menon said, "We are looking at pretty healthy growth from all the firms. We are looking at marginal improvement also ranging from 40-60 basis points." He added, "Every year... some offers are cancelled anyway. I wouldn't really be worried too much."

Meanwhile, Infosys said that the board would consider a buyback of shares on Thursday, with the earnings for the quarter ended September.

The software major conducted a share buyback in September 2021 and bought back shares worth Rs 9,200 crore through the open market.