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TCS, Infosys and Wipro shares under pressure as Street stares at sticky attrition

TCS, Infosys and Wipro shares under pressure as Street stares at sticky attrition

By CNBCTV18.com  IST (Published)

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TCS, Infosys, Wipro, HCL Tech and Tech Mahindra fell up to one percent in early deals on Friday, as analysts feared elevated levels of attrition will continue to impact Indian IT software exporters' margins.

Most IT stocks suffered selling pressure on Friday, a day even as after reported a set of quarterly performance that highlighted strong demand for the sector. TCS, Infosys, Wipro, HCL Tech and Tech Mahindra fell up to one percent in early deals, as analysts feared elevated levels of attrition will continue to impact Indian IT software exporters' margins.
US-based IT consulting firm Accenture raised its full-year revenue growth guidance to 25.5-26.5 percent from 24-26 percent. It follows a September-August financial year. Its constant currency revenue jumped 27 percent on a year-on-year basis backed by a healthy deal book — suggesting high demand for technology.
The higher revenue guidance comes at a time when IT giants such as TCS, Wipro and Infosys are struggling against shrinking margins due to higher spends to tackle attrition.
BrokerageRatingTarget price
Credit SuisseOutperform675
IIFLSell442
According to Nomura, Accenture’s quarterly numbers underscore robust near-term demand, but attrition levels in Indian IT companies are likely to remain at elevated levels over the next few quarters. The brokerage has Infosys and HCL Tech as the only 'buys' in the space.
Many analysts have a positive view on IT stocks despite near-term headwinds.
Accenture's revenue guidance is far ahead compared with that of some of the biggest companies in the Indian IT space.
CompanyRevenue growth guidance (%)Period
Infosys13-152022-23
HCL Tech12-142022-23
Wipro1-3Apr-June 2022
Indian IT is not only used for cutting costs but also for generating revenue so it is no longer a discretionary spend, Sandip Agarwal Research Analyst-Institutional Equities at Edelweiss Securities, told CNBC-TV18.
"Cutting tech spends will be the last thing companies will do... Attrition is coming down at a good pace. Accenture's management has indicated that the fourth quarter will also be strong," said Agarwal, who prefers HCL Technologies and Tech Mahindra from the space.
CLSA expects Indian IT majors to clock similar demand strength in the three months to June 2022, though it warns that cross currency will likely be an optical dampener. Cross currency refers to forex rates outside of the US dollar.
The brokerage prefers Infosys, TCS and HCL Tech from the Indian IT basket.
ICICI Securities has an underweight stance on Indian IT services. It expects attrition to remain at elevated levels and margins to continue to be muted for Indian IT companies in the first half of the year ending March 2023.
"The slowdown in headcount addition, decrease in book-to-bill ratio and moderation in revenue growth all point towards normalisation of growth momentum ahead for IT services industry. We believe revenue momentum is likely to slowdown in H2FY23 for Indian IT services as enterprises delay new projects amidst macro uncertainties," the brokerage said.
It suggests investors to stick with ITC among largecaps and Coforge among midcaps.
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