Wage increase, attrition rise to impact IT industry’s margin: HDFC Securities

New Delhi: IT industry’s margins are expected to be impacted by wage increases as well as high attrition rate, said HDFC Securities.

“Margin will be impacted by wage increases, increase in sub-contracting or attrition, offset partly by operating leverage and FX or offshoring,” HDFC Securities said in a report.

According to the report, strong deal momentum, broad- based industry-vertical trends towards digital transformation, positive cyclical indicators in product development or engineering services and consulting, accelerated hiring, and improving alignment with hyperscalers or ‘SaaS’ indicate continuity of momentum for the sector.

“‘Tier-1 IT’ is expected to deliver 4 per cent QoQ and 20 per cent YoY revenue growth.”

In comparison, mid-tier IT is expected to post 3.5 per cent QoQ with larger mid-tier averaging ‘>4.5’ per cent QoQ.

Besides, HDFC Securities has maintained a positive outlook for the industry.

“We roll over valuations to Jun-23E and raise target multiples for most of the companies in our coverage universe to reflect greater visibility or longevity of growth.”

“Our positive stance on the sector remains premised on the longevity of high growth (and strong balance sheet), supported by large deal wins. While mid-tier IT valuations have hit escape velocity, driven by strong business momentum, broadly risk-reward is favourable for tier-1s. Preferred picks are ‘Infosys, HCL Tech, Mphasis and Sonata’.”