TCS, Infosys, Wipro: Good or bad? How analysts see ISG Q1 deal flows, commentary

Ahead of the kick start of IT reasons season in India, ISG reported weak bookings in Managed Services with an annual contract value (ACV) of $10 billion, led by weakness in the Americas, especially the BFSI sector. While there was some improvement in BFSI deals during the end of the quarter, higher-than-expected US retail inflation for March delayed expectations of the Fed’s interest rate cuts, which could impact the BFSI sector in Q2 as well, analysts warned.

ISG, a global technology research and IT advisory firm, predicted a 3 per cent growth for Managed Services, a decrease of 125 basis points from the earlier 4.25 per cent growth. However, it maintains its forecast of a 15 per cent revenue growth for XaaS in 2024. Looking ahead, economic conditions are anticipated to be more stable compared to 2023, though challenges remain. Outsourcing may experience an upswing as companies strive to balance cost efficiency and service excellence, ISG suggested.

ISG’s 1QCY24 deal flow data indicates a further moderation in bookings, said Antique Stock Broking. However, companies that excel in delivering cost optimization projects and have strong client relationships should continue to report healthy deal TCVs, it said. TCS will kick off Q4 earnings season in India today.

"Further, for a recovery in revenue growth for FY25, performance of the BFS vertical is of great importance and ISG expects an improvement only in 2HCY24. In our view, ISG’s guidance, recent results, and commentaries suggest that some green shoots for a better demand environment are visible, especially in 2HCY24. Currently, HCL Tech and Mphasis are our preferred picks within the IT coverage universe," it said.

Nuvama said Q1CY24 ISG deal flow data was overall 'neutral' for Indian IT firms with Managed Services soft and XaaS staging a strong recovery. Overall deal flow was still up both QoQ and YoY, despite the uncertainty in decision-making process and reinforces our positive stance on the sector, it said.

It stayed positive on the IT sector through the year and expects strong deal-wins of the last few quarters to gradually convert into revenue in coming quarters as US macro turn favourable.