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Nirmal Bang Report
While management commentary by Indian IT services players has been positive post Q1 FY23 in the run up to Q2 FY23, most macro indicators in the developed markets have been deteriorating and many more customer verticals/sub-verticals beyond mortgages and retail have been indicating stress.
Thus, while we expect robust QoQ constant currency revenue growth for players under our coverage (3.5% – 4.5% for tier-I and ~6% for tier-II) and QoQ margin improvement, the street is looking beyond this into what might transpire in H2 FY23 and FY24.
Robust revenue growth expectation is based on the strong order intake momentum seen in the previous quarters. Significant cross-currency headwinds (80-300 basis points for our coverage universe) would restrict U.S. dollar revenue growth.
While margins may have bottomed out in Q1 FY23, it remains to be seen how much of an improvement there will be on a QoQ basis as some companies would have implemented salary hikes fully or partially in Q2 FY23.
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