Q1 Results for IT Services Firms

Q1 Results for IT Services Firms

As Q1 results for #itservices firms will get announced, we will see a few standard terms discussed in the management commentary.

1)Cross-currency headwinds due to the INR weakening against the USD will reflect a higher growth in constant currency (USD) against the reported currency.

2)Supply-side pressure due to high #attrition, sub-contracting costs, and higher hiring resulting in lower utilization and resumption of travel will impact #operatingmargins.

Though analysts would expect the above points and factored into the stock price, the significant risk is how to factor in the potential recession in the US and how it impacts the demand for IT services. Though digitization and tech spending is less discretionary, a slowdown can result in spending cuts in tech spending, resulting in lower demand for the medium term.

Thus, IT services firms with a honeymoon phase post-covid with higher demand (digital transformation) and lower cost (work from home and no travel expenses) can witness an upheaval with supply-side pressure lower demand due to impending slowdown.

Markets that price stocks on #EPS and forward P/E can rerate the forward earnings multiple for IT firms on pre-covid levels, which witnessed a higher valuation multiple (due to the increased earnings) during the COVID.