India’s IT services giants are facing a challenge in justifying their valuations as they prepare to report their earnings, which are expected to be the weakest in years. Despite a 12% rally in India’s tech sector index, including companies like Infosys and Tata Consultancy Services, during the last quarter of 2023, the earnings remain under pressure. This comes even as global sentiment towards the industry has improved.
Analysts at Motilal Oswal Financial Services, Mukul Garg and Pritesh Thakkar, noted that although sentiment has improved, it has not yet translated into actions. Nomura analysts also expect the ongoing slowdown to have a negative impact on discretionary tech spending in the coming years.
Companies in the tech sector are focusing on integrating generative AI into their operations and training employees to effectively utilize this tool. Samsung Electronics, for instance, experienced support for its earnings during the quarter due to higher shipments of DRAM chips. Samsung Electronics’ bit shipments for DRAM are expected to have grown, along with higher average selling prices, while NAND sales likely increased as well.
In terms of upcoming highlights to watch out for, Samsung Electronics’ fourth-quarter revenue is projected to remain steady, while net income is expected to decline. Tata Consultancy Services is anticipated to report its weakest quarterly revenue growth since July-September 2020, primarily due to cuts in discretionary tech spending by its clients in the US and Europe. Meanwhile, Infosys may report its first quarterly profit drop since July-September 2019, with revenue expected to be relatively unchanged.
Fast Retailing’s first-quarter operating profit is expected to have increased, although Uniqlo’s margin growth may have slowed due to higher labor costs and store expansion expenses. Additionally, HDFC Life Insurance is predicted to report a significant decline in profit as it struggles to gain market share, compounded by the impact of a new draft regulation on policy surrender charges.
Overall, India’s IT services giants face a challenging reporting season as they struggle to meet valuation expectations amid weak earnings.
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