Edition 22 – Striking a balance: Exploring recent IT sector performance and influential factors

It is often said that markets are forward-looking. We got to see a perfect example of that over the last year in the divergent trend between price movement and fundamental performance of Indian IT services companies. The median QoQ Constant Currency (CC) revenue growth in Q2FY23 of Tier-1 / Tier-2 IT companies was 4%/6.2% – with no signs of a slowdown, at least in the reported numbers. However, the IT index was down ~30% from its Jan-22 peak (Refer Exhibit: 1), and more downside was anticipated with an impending energy crisis and recession as the winter set in. Fast forward to Aug-2023 and the median Q1FY24 QoQ CC growth was -1.3%/+1.4% for Tier-1/2 companies.