Motilal Oswal Institutional Equities expects a dip in margins for most IT Services companies (60bp/110bp for aggregate Tier I/II players), led by a second wage hike and an increase in attrition/hiring.
"We expect wage hikes to be in the 100-350bp range for large/midcap IT companies," the equity firm has said.
However, the brokerage does see a strong demand environment. "We expect commentary with regard to FY22 to remain constructive, with firms maintaining their double-digit revenue growth guidance. We also expect better clarity from companies like Infosys, HCL Tech, and LTTS, which highlighted COVID related uncertainty in their outlook in 4QFY21. We expect Infosys to raise its FY22 revenue growth guidance on the back of a strong 1Q performance, while a revised capital allocation policy from HCLT can be a positive development," Motilal Oswal Institutional Equities has said.
The brokerage also sees strong growth in profitability going ahead. "We expect our IT coverage universe to deliver strong PAT growth (25% YoY and 5% QoQ). TCS/INFO is expected to report a PAT growth of 33%/29% YoY. Net profits for Wipro and HCL Tech will be subdued on account of a dip/flattish margin due to the CAPCO acquisition/higher employee cost," the brokerage has said.