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 are 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 (#digitaltransformation) 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.

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