The information technology (IT) industry is one of the fastest-growing sectors of India. As we know, companies such as TCS, Infosys, and Wipro have established themselves as the leading IT firms in the world. These companies have spearheaded the digital revolution and have contributed immensely to India’s rapid economic growth. Despite the Covid-19 pandemic causing disruptions across all economic activities, major IT companies have shown a phenomenal increase in their revenue and overall growth. Even after the recent market crash on December 21, the Nifty IT Index showed a very impressive rebound.
Let us take a closer look at specific factors that have led to a sharp increase in the performance of IT companies over the past year.
Work from Home Model
The lockdowns imposed all over the world did not affect the productivity of the IT sector employees. In India, the IT industry made employees Work from Home (WFH) as per the government’s mandate. About 90% of employees worked from home, with 65% of them from homes in metros and the rest 35% from homes in small towns. They were able to quickly transition into a WFH model and even obtain a better work-life balance. This was supported by better network connectivity across India. Employees could start and end their day as they choose, as long as their work was complete. More importantly, they were able to focus on their health and well-being. According to many surveys that were conducted over the past few months, it was reported that there was a high increase in productivity and efficiency of the IT sector workforce.
On the other hand, IT companies were able to introduce very efficient cost-cutting measures. Firms did not have to pay for expenses such as transportation and real estate costs. They have realised that working from home is a very effective and viable option that could be continued even after all lockdown restrictions were lifted.
Amidst the disruptions caused by the pandemic, companies such as Wipro and Infosys had even introduced salary hikes for their employees. This shows how committed these firms are towards the wellbeing of their employees.
Every week, we read about certain deals that have been secured by prominent Indian IT companies. Firms all around the world have realized the need for accelerating their digital transformation process. Even though many listed IT companies reported a decline in revenue during Q1 FY21, the new deals and orders helped them to show a massive rebound. This growth was shaped by major demand for cloud-based services, increasing IT spends by the small and medium-sized business segment, and government initiatives for data localisation.
The table below shows some of the massive deals/orders that had been signed by IT companies in Q3 FY21.
|Company||Client||Deal Size (in USD Million)||Deal Type|
|TCS||Deutsche Bank||500-1000||Acquisition of IT unit|
|Infosys||El Paso Water||NA||Cloud|
|TCS||Kingfisher plc||NA||Service Partner|
As we can see, the orders placed by very prominent international business groups or government agencies have helped IT companies to show a rapid increase in performance and revenue. According to NITI Aayog CEO Amitabh Kant, India has witnessed $38 billion (~Rs 2.73 lakh crore) investments in tech companies during the past six months. He further stated that artificial intelligence is going to become one of the biggest opportunities for India, with respect to technology applications. The emerging technology is expected to add $957 billion to the Indian economy by 2035.
Strong Financial Performance in Q2
As mentioned above, IT companies had reported a decline in their revenues in Q1. However, their revival was very strong in the next quarter. Let us take a look at the Q2 results of the three major IT companies in India:
- Tata Consultancy Services reported a 7.05% year-on-year (YoY) decline in its net profit at Rs 7,475 crore for the second quarter ended September 2020. It reported a net profit of Rs 8,042 in the corresponding quarter last year. However, the results had surpassed all street estimates. On a quarterly basis, the consolidated profit rose 6.66% from Rs 7,008 crore in the June quarter of the current financial year 2020-21. The company has been able to secure a total market share of 32.05%.
- Infosys Ltd reported a 20.50% year-on-year (YoY) rise in net profit at Rs 4,845 crore for the quarter ended September. The figure stood at Rs 4,019 crore in the corresponding quarter last year. Its consolidated revenue from operations increased to Rs 24,570 crore in Q2FY21, up by 8.6% YoY. The operating profit also rose to Rs 6,228 crore, a growth of 26.8% YoY. Infosys has a market share of 18.57% in the Indian IT sector.
- Wipro Ltd posted a 3.40% year-on-year (YoY) fall in consolidated net profit at Rs 2,465.70 crore for the quarter ended September 30. It had reported a net profit of Rs 2,552.70 crore in the corresponding quarter last year. Consolidated revenue of the company declined marginally 0.07% YoY to Rs 15,114.50 crore, over Rs 15,125.60 crore posted in Q2FY20. However, it showed an impressive rebound on a quarter-on-quarter (QoQ) basis. Wipro’s market share stands at 12.67%.
Due to the massive deals and cost-cutting measures, it is very likely that these companies will post a significant increase in their revenues in the coming quarters.
As you might have read, the shares of major IT companies such as TCS and Infosys hit a 52-week high on Friday after Accenture Plc announced better-than-expected results for its first quarter. (Accenture follows the September-August Financial Calendar). Interestingly, certain financial analysts have stated that large Indian IT firms tend to follow Accenture’s performance with a certain lag. Despite this, we do know that IT companies all over the world have consistently shown great financial performance over the past few years. The Nifty IT Index continues to show a great bull run. Also, do not forget the common saying in the market, “Buy on rumours, sell on news”.
All major businesses and government entities around the world are improving their digital services to cater to the needs of all citizens. The demand for the services and products of IT companies is only going to increase in the years to come. These companies will post their financial results for the October-December (Q3) period soon. The outlook for Indian-based IT firms remains to be very strong. In anticipation of great results, all major IT stocks tend to show a very impressive rally. Let us look forward to the positive results of India’s fastest-growing sector.