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MOSL: TECHNOLOGY: AGIC takeaways - Growth outlook intact; supply-issues transitory

TECHNOLOGY: AGIC takeaways - Growth outlook intact; supply-issues transitory

 

We interacted with 12 IT services companies during our Annual Global Investor Conference (AGIC). The discussion was centered on demand longevity, supply-side challenges, pricing, and the margin outlook. Here are the key highlights: 

• The key themes from our interaction are as follows: 1) the demand environment continues to be strong, with traction across industries, and is multi-year in nature; 2) the supply side is overheated on account of the sudden jump in demand, but this is transient and expected to normalize in FY23; 3) companies are seeing select cases of price increases, led by digital engagements; 4) margins should see headwinds in FY22 due to supply-side issues, but normalize over the medium term, aided by growth and operating levers.
• Quess and TeamLease also highlighted strong demand and an increase in attrition in their IT Staffing verticals, indicating good traction across the value chain.
• We continue with our positive stance on the sector and maintain Infosys and HCL Tech as the preferred picks within tier 1 and LTTS within tier 2.

 Demand outlook continues to be robust and sustainable

• The overall demand environment is strong, led by an overall increase in tech spending, higher outsourcing intensity, and the addition of new clients.
• Cloud remains the key growth theme, with TCS’ CEO Mr Rajesh Gopinathan highlighting multi-year tailwinds from cloud migration, followed by a long period of investment in cloud-native technologies.