The verdict is out, and Infosys leads the pack among the big four Indian IT services companies at a time when macroeconomic issues persist and demand is yet to fully recover.
Infosys has beaten its nearest rivals on metrics such as constant currency (CC) revenue growth and margins. However, the Bengaluru-based company’s headcount declined in Q1, which is the sixth consecutive quarter of the company shedding employees.
If HCL Technologies' divestment of its stake in a joint venture with financial services firm State Street is discounted, which sent its headcount crashing by over 8,000, Infosys’ performance was the poorest on this metric.
In April, HCL Tech divested its entire 49 percent stake in a joint venture, formed in 2012, with the US company.
On the attrition front, all IT companies reported a decline as the job market has cooled from the heydays of the post-pandemic years.
Also read: India's top 3 IT firms report over 4,500 headcount reductions in Q1
Revenue growth for most companies was positive in Q1, barring HCLTech, which reported a decline of 1.5 percent. Tata Consultancy Services (TCS) and Wipro were behind Infosys on this metric by about 2 and 1 percent, respectively.
On the margins front, Infosys jumped 100 basis points (bps) sequentially to 21.1 percent. On the other hand, tech behemoth TCS declined 140 bps, to 24.7 percent. HCLTech’s margin declined by 50 bps to 16.6 percent, while Wipro’s increased marginally.
Nonetheless, most companies reported a decent quarter on the total contract value (TCV) metric. TCS led with over $8 billion worth of TCV, double that of Infosys and almost triple the value of Wipro’s wins. HCLTech’s TCV fell shy of $2 billion.
What the CEOs said
The management of these IT firms appear to be cautiously optimistic as they desisted from commenting on estimated recovery timelines in discretionary spending, adding that there have been pockets of recovery with clients becoming more open to spending on critical and large transformation projects. Technology spending is also being seen in generative AI proofs of concept and projects.
For companies like TCS, HCLTech, and Wipro, growth has been broad-based, across all verticals and geographies, while Infosys' BFSI vertical delivery sequestially.
"There's nothing new to add in terms of market sentiment. However, as mentioned last quarter, we believe it will be a stronger FY25 compared to FY24," said K Krithivasan, CEO, TCS. The management noted that Latin America, Middle East and Africa, and India continued to have strong growth in line with their diversification strategy.
As for Infosys, it increased its revenue growth guidance for FY25 to 3-4 percent from the previous 1-3 percent.
The company’s CEO, Salil Parekh, said, “If you look at the first quarter, our year-on-year growth has been 2.5 percent... That is a one-off. We have always maintained that our H1 is going to be better than H2, and the guidance shows that.
“And then there is the revenue from in-tech (a firm acquired by Infosys). All that put together makes for a guidance of 3 to 4 percent,” he added. Infosys acquired in-tech, an engineering R&D services provider with a focus on the German automotive industry, in April 2024.
HCLTech has retained its full-year revenue growth guidance of 3-5 percent YoY in CC terms. The firm's CEO and MD C Vijayakumar said, “We have not factored any significant pick up in discretionary spends. Our assumption is this year will be the same as last year… Though we see some actions which indicate that things could have bottomed out, I do not want to take a call… because there have been so many false starts in the last few quarters.”
He expects that in Q2, the company will grow in all geographies and verticals, except financial services.
Wipro too had raised its sequential growth guidance to -1 percent to 1 percent in CC terms. This comes after the company slashed its guidance last quarter to -1.5 to 0.5 percent.
“We're still not seeing a significant change in the demand environment. We see clients still cautious and the discretionary spend is low. However, we have seen an uptick in the consulting (through its acquisition Capco), BFSI, and consumer sectors in the US,” said Wipro CEO Srini Pallia.
This quarter, green shoots were visible across these companies in the banking, financial services, and insurance (BFSI) space, especially in north America. Both the vertical and the geography account for over 30-40 percent and 50-60 percent of the revenues, respectively, of these companies.
Though still reporting negative growth in most cases, the management of these four companies believes that the BFSI vertical will continue to grow. “We have seen a change in financial services in the US, which indicates positive outcomes in this quarter,” Parekh said.
Also read: Mega telecom deals are making a comeback for IT sector, but is the vertical really recovering?
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