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Indian IT Results Come In Weak, Non-Event Say Analysts

ndia’s $245-billion IT sector has been fighting to retain and grow business as clients cut spending on non-essential projects amid inflationary pressures and recession fears

By Govindraj Ethiraj
New Update
Indian IT Results
On today’s episode, financial journalist Govindraj Ethiraj talks to Rahul Jain, VP at Dolat Capital and IT company analyst as well as Dr Ajay Sahai, Director General of the Federation of Indian Export Organisations.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (02:30) More oil supplies balance out pressure on oil prices from Red Sea tensions
  • (03:47) Indian IT results come in weak, non-event say analysts
  • (12:20) RBI says position against crypto unchanged, regardless of other country moves 
  • (14:39) India’s FDI is falling, despite announcements to the contrary
  • (16:49) Indian exporters’ woes stare at double whammy this year, commodities could be worst hit

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.


Indian markets were steady, being the best term I could come up with to describe the Sensex which was up 63 points to 71,721 points with some fluctuations during the day, similar to the Nifty 50 which closed 29 points up to 21,647.

The markets were waiting for the Infosys and TCS results which were largely as expected and more of that in a moment and signals from the US, in the form of inflation numbers there. 

Reliance Industries (RIL) stock hit a new high of Rs 2,722, having risen 5.5 per cent in the past two trading days, thanks among other things a positive rerating by Goldman Sachs.

Speaking of Goldman Sachs, it reclaimed the title of Wall Street’s top equities shop from Morgan Stanley having lost it a decade ago. 

Goldman has not only reclaimed the title, it’s now poised to post its biggest lead over Morgan Stanley in years, Bloomberg reported.

US inflation accelerated in December as Americans paid more for housing and driving, challenging investor bets that the Federal Reserve will cut interest rates soon.

The consumer price index increased 3.4% in the year through December, the most in three months according to government figures. On a monthly basis, it also rose by more than forecast.

On an annual basis, the so-called core measure increased 3.9%.

And our energy segment is supported by India Energy Week.

Uncle Sam is pumping oil again.

Oil dropped in another choppy session after a surprise buildup in US crude stockpiles undercut the threat to supplies from recent escalations in the Red Sea, Bloomberg reported.

US inventories unexpectedly swelled 1.34 million barrels, the biggest increase since mid-December, leading to price softening and sentiment turning bearish. 

Oil had earlier rallied after Houthi rebels launched more attacks on merchant vessels passing through the Red Sea, though no injuries or damage were reported. The attacks are continuing despite an active and armed US-led maritime force in the area.

Demand forecasts and supply from the US are keeping prices down despite production cuts by the OPEC countries and of course the Red Sea tensions. 

All in all, it looks like oil will be steady this year.

The Core Report's energy section was supported by India EnergyyWeek to be held on February 6. Log onto www.indiaenergyweek.com for more details.

IT Industry Results A Non Event

The clear takeaway is not that India’s IT sector is slowing down which it is and quite expectedly so given the headwinds in the traditional markets of North America and Europe.

The question is will Indian IT ever see the kind of growth it did in the heady years, including the time when all major companies were beating analyst expectations quarter after quarter, giving optimistic guidance and beating those as well.

To come to the present, Infosys, India’s second largest IT services company after TCS whose results I will come to, missed quarterly profit estimates on Thursday.

Infosys also tightened its full-year revenue forecast on weak demand from clients amid economic uncertainty.

Consolidated net profit fell 7.3% and the Bangalore headquartered company revised its revenue growth forecast for a third consecutive quarter to 1.5%-2%.

India’s $245-billion IT sector has been fighting to retain and grow business as clients cut spending on non-essential projects amid inflationary pressures and recession fears.

Given the uncertainty, the only good news for Infosys or for that matter TCS is that attrition continues to reduce, in this case now close to 13% from 14.6%. TCS has a similar figure so it would appear that most software engineers are seeing a writing on the wall and hunkering down.

Infosys has said it has reached an agreement to acquire semiconductor design and embedded services provider InSemi.

The Core Report has argued in the past or wondered why Indian IT companies were not foraying into the semiconductor space and conceding the field to companies with little or no software or hardware technology background experience. 

"With the advent of AI, Smart devices, 5G and beyond, electric vehicles, the demand for next generation semiconductor design services integrated with our embedded systems creates unique differentiators. InSemi is a strategic investment as we usher a next wave of growth and a leadership position in Engineering R&D," said Dinesh R, executive vice president and co-delivery head at Infosys. 

Meanwhile, the Mumbai headquartered  Tata Consultancy Services (TCS) reported a 2% higher net profit of Rs 11,058 crore in the October-December quarter of the current financial year. 

The interesting thing about TCS results is that its UK market revenue is 8.1% even as North America declined 3% as companies there cut discretionary spending. 

Its consolidated revenue rose 4 per cent to Rs 60,583 crore from Rs 58,229 crore in the same quarter last year. 

Operating margins are high for both companies, in the 25% range.

The IT major also reported a net attrition of 13.3 per cent. 

I reached out to Rahul Jain, VP at Dolat Capital and IT company analyst and began by asking him for the common takeaways from both the results for now and his longer term prognosis for the industry ?


Direct Tax Collections Rise 19%

The state of the economy as measured by tax collections continues to look good.

Net direct tax collection so far this fiscal rose 19 per cent to Rs 147000 crore 0 trillion  reaching about 81 per cent of the full-year target, the income tax department said on Thursday.

Within this, gross Corporate Income Tax (CIT) has grown 8.32% and Personal Income Tax (PIT) is 8.32 per cent and 26.11 per cent respectively.  

The government has budgeted to collect a roughly 10% higher amount than last year. 

Refunds amounting to Rs 2.48 trillion have been issued during April 1, 2023 to January 10, 2024.  

RBI On Crypto

Cryptocurrencies can pose significant risks to emerging markets, the Reserve Bank of India (RBI) chief said on Thursday, pointing out that  the central bank's stand on the issue remains unchanged despite wider acceptance in other countries.

"Our position, my position and the RBI's position on this (cryptocurrencies) remains unchanged irrespective of who does what," Shaktikanta Das said in response to a question about the U.S. securities regulator approving the first U.S.-listed exchange traded funds to track bitcoin, a move that could bolster the world's largest cryptocurrency and the broader crypto industry.

"For emerging market economies and for advanced economies also, travelling down that path will create huge risks which will be very difficult to contain going forward," he said.

Cryptocurrencies have no underlying value and pose risks for macroeconomic and financial stability, the central bank chief has repeatedly said.

To the Government and the governor’s credit, they have held the view against mounting cynicism in the early days and then onwards as some of the biggest crypto firms imploded, including because of fraud committed by the founders.

On a slightly different note, the governor also said India’s financial institutions must guard against relying on algorithms and artificial intelligence to assess customers for loans.

Model based, algorithm lending can “lead to a potential crisis,” Das said in a speech organised by Mint newspaper in Mumbai on Thursday. 

He was referring broadly to the many apps that allow people to take loans with barely a swipe on a smartphone phone screen. And of course the technology that lies behind them empowering such quick disbursals, of mostly small ticket loans but at a scale which has social and economic consequences.

Banks and non-bank financial companies “must appraise robustness of models used for lending,” he said.

The Reserve Bank of India in November raised the capital cost of unsecured lending by banks.

The governor also specifically said that some banks and non-bank financial companies didn’t have the bandwidth to manage surge in loans approved by algorithm.

“It was very clear to us that this kind of growth would not be sustainable going forward if it is not slightly moderated,” the governor said. He said.

FDI Slows Down Despite Intentions Remaining High

FDI inflows into India have halved over the last year but are also shifting from pandemic-period sectors to ‘several’ futuristic sectors like renewables, green hydrogen, AI, EVs and semiconductors, a note from HSBC has said.

The HSBC note makes the optimistic case that as these new sectors settle, and if ease of doing business improves, gross FDI inflows could double from FY24 levels, going back to the peak of USD55bn/year in a couple of years.

India’s share in the global pot is also falling and to that extent worrying.

Of course, if many of the promises made in the many investment summits in Tamil Nadu last week and Gujarat this week were to materialise, then FDI numbers could look up.

But most of the announcements usually involve longer gestation greenfield or brownfield investments, like Maruti’s new Rs 35,000 crore automobile manufacturing plant and project in Gujarat.  

Interestingly, HSBC also says the weak FDI data is also at odds with investment intentions. 

Both UNCTAD’s and CMIE’s foreign investment intentions data, which are well correlated with each other, are rising. 

But unlike the past, higher intentions are not culminating into actual inflows. 

HSBC also points out that Digital FDI has been falling in keeping with technology trends worldover and cutbacks. 

But the mystery is the fall in physical FDI, despite a sharp rise in investment intentions. 

FDI into India tends to be rather concentrated, i.e. periods of rising FDI in the past have been led by a fewer number of sectors. And rather counter-intuitively, in periods when investment intentions rose across more sectors, overall FDI weakened. This could mean that India has well-oiled machinery to attract inflows in select sectors, but not across the board.


Speaking about FDI slowdown, exports are slowing down too but this time more because of the Red Sea tensions and shipping traffic being diverted around the Cape of Good Hope, adding a week to 10 days and huge costs as well.

A report put out last week said India may see around $30 billion shaved off its total exports in the current fiscal year, as container shipping rates surged causing exporters to hold back on shipments.   

The initial assessment, conducted by the Research and Information System for Developing Countries, a New Delhi-based think tank, would mean a 6.7% drop in Indian exports, based on last fiscal year’s $451 billion total.   

The number of ships passing through the Suez Canal is down about 44% compared to the average for the first half of December, according to Clarkson Research Services Ltd, a unit of the world’s largest ship broker, Bloomberg reported.

I reached out to Dr Ajay Sahai, DG of the Federation of Indian Export Organisations and began by asking him for a status check and also which industries were more affected right now? 


Marks & Sparks

In a sign of overall consumer confidence rising in western markets, British retailer Marks & Spencer (MKS.L) on Thursday reported a better-than-expected 8.1% rise in sales over the Christmas trading period, driven by market-leading growth in food and a strong performance in womenswear, Reuters reported.

"We enter 2024 with a spring in our step, but clear eyed on the near-term challenges," Chief Executive Stuart Machin said.

Interestingly, total U.K. sales rose 8.5%, while international sales fell 6.4%.

M&S said like-for-like food sales rose 10% in the 13 weeks to Dec. 30,outperforming the grocery market and ahead of the most optimistic analyst forecasts, Reuters said.