Employees walk past a water feature at Building 44 of the Infosys Ltd. campus in the Electronics City information technology hub in Bengaluru, India (Photographer: Karen Dias/Bloomberg)  

Total Revenue Of Top Five IT Firms Grows At Its Fastest Pace In 18 Quarters

What a comeback. Barely two years ago market and tech pundits were writing off the Indian information technology services sector. Aggregate revenue growth of the top five companies had dropped to single digits and by the first quarter of financial year 2017-18 had troughed to 5 percent.

Compare that with the quarter gone by. In which the total revenue of India’s five largest listed information technology companies grew at its fastest pace in 18 quarters on the back of a strong order book and deal wins.

Tata Consultancy Services Ltd., Infosys Ltd., Wipro Ltd., HCL Technologies Ltd. and Tech Mahindra Ltd. together saw their aggregate revenue in rupee terms rise 18.8 percent year-on-year in the three months ended December, according to exchange filings. The last time the companies witnessed high double-digit growth was in the first quarter of financial year 2014-15.

To be sure, the U.S. dollar has appreciated 11.5 percent against the rupee since the first quarter of FY15.

“About 40,000-50,000 people have been added by the six largest Indian IT firms in the quarter (ended December 2018),” Vineet Nayar, former chief executive officer of HCL Technologies, told BloombergQuint in an interaction. “Such large year-on-year addition of manpower is a positive reflection of growth in Indian IT.”

Broking firm CLSA attributed the growth to a robust deal pipeline, increase in the contribution of digital services in the companies’ revenue share and a sustained recovery in key verticals like banking, financial and retail.

Here Are The Factors That Led To The Robust Growth Of IT Companies:

Deal Wins

Deal momentum continued for software services providers in the third quarter, suggesting a return in client confidence.

  • TCS’ order book grew 20 percent sequentially to $5.9 billion in the December quarter.
  • Infosys, which increased its full year guidance to 8.5-9 percent from 6-8 percent, booked orders worth $1.5 billion.
  • Wipro’s deal with Alight Solutions boosted its growth.
  • HCL Technologies’ growth in new generation technology and product businesses surged.
  • Tech Mahindra saw a significant pick up in the telecommunications segment and booked total contracts worth $440 million.

“The deal environment is the most bullish in a decade led by robust growth in digital services and recovery in legacy deals,” Edelweiss had said in a report in January. “Further acceleration in revenue growth for Indian IT companies is on the cards. The sector’s growth is poised for a take-off.”

Agreed Motilal Oswal Securities. The demand environment for IT services remains strong, it said in a research report.

Digital Services

Cloud computing, automation and analytics are increasingly becoming the mainstay for IT companies as clients are now implementing them on an enterprise-wide level.

Digital services revenue for TCS rose 53 percent sequentially in the December quarter. The segment now contributes 30 percent to its total income. For Infosys, the digital business now contributes 32 percent to its consolidated revenue.

Legacy Business

Growth has also returned to the legacy businesses of IT companies like banking and financial services.

While the recovery continued for TCS, Infosys and Wipro in the BFSI (banking, financial services and insurance) vertical, HCL Technologies witnessed steady growth in its infrastructure management services segment. Growth in Tech Mahindra’s key telecommunications vertical was driven by its capital expenditure to provide 5G services.

Yet, broking firm Nirmal Bang sounded cautious. It expects client spending to fall in the next one year, which in turn will impact the revenue growth of the Indian IT companies in FY21.

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