Wage hikes, hiring costs set to weigh down IT firms’ margin in Q2

K V Kurmanath Hyderabad | Updated on October 04, 2021

However, the industry expects a strong demand, and the growth outlook remains intact for the financial year.

The IT industry is expected to see a dip in margins in the second quarter of the financial year, owing to pressures caused by wage hikes to arrest attrition and hiring to make up for the lost talent.

The industry, however, will continue to witness a strong demand, and the growth outlook remains intact for the financial year.

“While skill-specific cost has increased in the market, we expect companies to try to right-size their pyramids in order to offset the increase,” according to market research firm Motilal Oswal.

“Hiring across the IT firms (in our research purview) will continue to remain high as companies try to fulfil demand and backfill growing attrition, which will be a key focus area for investors,” it said in its earnings forecast for the second quarter.

The top-ranking IT companies are better placed to absorb the supply pressure, given their capabilities concerning training employees in newer skills.

Growth forecast

The research firm, however, forecasts a comfortable growth in the profit after tax. “We expect our IT coverage universe to deliver a PAT growth of about 12 per cent year-on-year and 1 per cent quarter on quarter,” it said.

The top two IT firms – IT and Infosys – are expected to report a PAT growth of 16 per cent YoY ( year-on-year).

“We expect TechM to post the highest YoY PAT growth within tier-i IT league on strong margin expansion over the past four quarters,” it pointed out.

The IT companies (in the research firm’s coverage) industry is expected to witness a median growth of 5.4 per cent in revenues at constant currency quarter on quarter in the second quarter.

“Topline performance is expected to remain strong across our coverage, led by a robust demand environment and deal wins,” it said.

Published on October 04, 2021

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