As economic troubles starting with the war in Ukraine spelled trouble for Western markets like Europe, firms have largely been reporting declining margins in every financial year. The risk of recession in the 2024 fiscal along with necessary investments into generative AI further dampened operating margins for top IT firms like HCL Tech, Wipro, and Infosys.
Sanchit Vir Gogia, Chief Analyst and Founder of Greyhound Research explained to businessline, “Given the macroeconomic uncertainty, business cycles are much behind the investment cycles for IT companies. With technologies like AI and IOT needed for future growth, IT firms have to continue to make these investments, even as digital transformation projects continue to be delayed.” Gogia believes that for the most part, IT firms will not be able to improve margins significantly in the next financial year as well – even though management commentary for the closing quarter of FY24 has posited some optimism for the 2025 fiscal.
Gogia said that even though firms like Infosys and HCL are seeing limited growth in margins, the investor community is not necessarily too concerned. “These are necessary investments that will deliver growth in 5-7 years,” said Gogia. “Large-scale AI deals will start to come in FY26 and FY27. In this context, the current margins for IT companies are healthy even if they are being squeezed at the moment,” he added.
Hindu Business Line
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