India’s prominent software exporters are preparing for a significant deceleration in growth this year, as their major market, the US, reduces technology spending due to economic uncertainties. In recent weeks, Infosys and HCL, the second and third-largest IT firms in India, respectively, have stated that revenue growth would decrease to single digits for the fiscal year ending March 2024, compared to double digits in the previous 12 months. Tata Consultancy Services, India’s largest IT firm, did not provide revenue guidance, but in a recent analyst meeting, it expressed a similarly bleak outlook, stating that clients were cutting back on spending for “discretionary” and “noncore projects.” Even though demand was anticipated to rise significantly in the new year, CEO Rajesh Gopinathan revealed that it had turned even more negative.
Chief Executive Rajesh Gopinathan remarked that although there was a slowdown in demand in the US during Q3 (October to December), the company expected a significant uptick in the new year. However, demand has, in fact, deteriorated further.
During the previous quarter, North America accounted for 52.4% of TCS revenue, 61% of Infosys revenue, and roughly 63% of HCL’s revenue.
After a pandemic-fueled boom, TCS, Infosys, and HCL experienced a slowdown as companies rushing to digitize their operations propelled demand. Nevertheless, client spending has declined in recent months due to higher interest rates affecting economic activity, leading to the failure of Silicon Valley Bank in the US and the sale of Credit Suisse to UBS in Europe.
Last month, analysts Kawaljeet Saluja, Sathishkumar S, and Vamshi Krishna from Kotak Institutional Equities noted that the slowdown was more severe than anticipated. They also mentioned that the banking crisis in regional US and European banks in March 2023 has induced greater caution and could affect the June 2023 quarter.
Infosys estimates that revenue will rise between 4% and 7% in constant currency terms in the 2024 fiscal year, down from 15.4% in 2023 and 19.7% in 2022. In the 2023 fiscal year, the company earned $18.21 billion in revenue.
In January, Infosys officials were so positive that they raised their revenue growth forecast for the 2023 fiscal year to between 16% and 16.5%. However, the actual growth of 15.4% fell within the 15% to 16% range they had predicted in October.
In April, Infosys CEO Salil Parekh informed reporters that the company witnessed unplanned ramp-downs across various sectors during the quarter. The affected sectors included telco, high tech, retail, and financial services, with mortgages, asset management, and investment banking experiencing the slowdown.
HCL predicts that its revenue will grow between 6% and 8% in fiscal 2024 after experiencing a 13.7% increase in fiscal 2023, which amounted to $12.58 billion.
Industry analysts anticipate TCS to grow at a faster rate than Infosys, which had outpaced its larger competitor in the previous two years. HDFC Securities analysts suggested that TCS would benefit from a more favorable portfolio mix.
