The two bellwethers of the Indian software services industry – Infosys Ltd. and Tata Consultancy Services Ltd. – continued their shift towards digital services in the quarter-ended March.
TCS, the country’s largest information technology company, stayed ahead of Infosys on almost all parameters but both indicated a common trend – a revival in the industry.
“Things are coming back on track overall for the IT sector and not just TCS,” Harit Shah, research analyst at Reliance Securities, told BloombergQuint in an interaction. Trip Chowdhry of Global Equities Research agreed. “The results are a sign that business for the IT sector is now stabilising.”
Here’s how TCS and Infosys fared in the fourth quarter:
TCS surprised analysts with a 3.9 percent sequential growth in dollar revenue. That was twice the pace at which Infosys’ dollar revenue grew in the fourth quarter.
Even in constant currency terms TCS’ growth outstripped Infosys by a wide margin.
Operating margin is one of the most important metrics for IT firms. Over the last year TCS has pipped Infosys on margin in all but one quarter. This quarter was no different.
TCS hopes to achieve a higher margin than Infosys in 2018-19 as it expects deals in digital services to contribute to growth. Infosys, on the other hand, has lowered its margin expectation as it wants to invest more in digital.
Both firms said growth was driven by digital offerings, and that will continue to be the case in future. They also plan to increase investments on the digital side to scale up services such as cloud transformation, modernisation of IT infrastructure, and system upgradation for clients.
The contribution of digital services to revenue is slightly higher for Infosys than TCS.
TCS’ growth across its verticals outpaces that of Infosys. Banking and financial services, the highest contributor to revenue, has grown for both companies. For Infosys though, revenue for the retail business has declined.
With client spending slowing down in North America, the key market for Indian IT firms, both companies shifted focus to Europe. And that paid off, with the European market driving growth for TCS and Infosys.
Also Read: Infosys Profit Declines Amid Digital Push