IT companies’ Profit Margins must be under pressure in the January-March Quarter due to Pay Raises & Record Hiring!! The March quarter earnings season will kick off next week with big information technology (IT) businesses like Tata Consultancy Services (TCS) and Infosys reporting on April 11 and 13, respectively. Most experts feel that March is a traditionally slow month for IT companies, and that earnings growth would be minimal due to margin constraints.
Because of rising staff compensation and record hiring, IT companies’ profit margins are projected to be squeezed. “Indian IT will increase at a moderate pace in the March 2022 quarter, in keeping with previous seasonal averages.” “Margins will continue to be squeezed as a result of rising wages, both onshore and offshore,” according to Kotak Institutional Equities.
| Top IT companies | Results Date | Expected revenue growth in Jan-Mar* |
| TCS | April 11 | 2.7% |
| Infosys | April 13 | 2.2% |
| Wipro | April 29 | 3.6% |
| HCL Technologies | April 21 | 1.2% |
| Tech Mahindra | – | 5.2% |
The IT industry as a whole, including the top five businesses, is battling to keep staff. In fact, Tech Mahindra lost more staff in the last quarter than TCS and Wipro combined.Even though the business has added a record number of freshers, the talent shortfall persists, according to the research. Companies’ profitability will be eroded as a result of the high cost of backfilling attrition and retaining talent.
Meanwhile, due to solid broad-based demand and increased spending on new technologies by businesses around the world, the economic trend may continue. “Right now, the demand environment is strong. As the repercussions from the Russia-Ukraine crisis affects key economies, there could be a moderate danger to demand. Nonetheless, we expect that many companies will be able to achieve double-digit growth,” according to a report by Kotak Institutional Equities.
In the medium term, higher employee costs and a scarcity of trained talent will continue to be major issues for IT firms.Investors will pay close attention to management comments on the impact of higher energy prices, inflation, and a potential economic slowdown on technology spending, demand trends in key verticals such as banking, financial services, and insurance (BFSI), retail, manufacturing, and communications, and attrition rates.
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