In the last one week, the four major IT companies in India have announced Q3 results. The surprising part is that there has been a consistently flattering show by IT companies across the board. Why has IT suddenly come into the limelight?
Attractive guidance for IT
Among the top 4 IT companies in India, TCS still does not give guidance about the future performance. That has been their stand from day-1. However, if we look at the other 3 players, guidance on revenues has been quite robust. Wipro, Infosys and HCL Tech have all guided a revenue growth of 2.5% to 3.5% on an average in the Mar-21 quarter. That is a sign of solid traction in IT spending in the key markets of the US, UK and EU. The concerns expressed by Gartner on IT spending appear to be exaggerated.
Operating Margins got a boost
If there is one factor that stands out across all four companies, it is the sharp improvement in operating margins. Of course, TCS leads with over 26% while Infosys is close behind at above 25%. But what is really gratifying is that even HCL Tech and Wipro saw a 300 basis points expansion in OPMs and both are comfortably above 21%. This is the first time in recent quarters that the OPM expansion has been so robust across the four large IT companies. COVID surely forced Indian IT companies to manage costs better and cut down on attrition.
Digital and off-shoring
There have been two distinct shifts that were forced upon Indian companies in the last 8-10 years. First was the big shift towards digital. From traditional BFSI, the focus of IT projects shifted to cloud, analytics, mobility and social. The Indian IT industry did manage to adapt quickly and today more than 35%-40% of revenues of all the top IT companies come from digital businesses. Secondly, the restrictions on H1-B initiated by Donald Trump in 2016 took its toll on the on-shoring model. Indian IT was again quick to adapt to a mix of off-shoring of projects and getting projects executed with local manpower. Today, the IT companies are reaping benefits.