(Bloomberg) — Tata Consultancy Services Ltd. posted disappointing earnings after fears of a global recession spurred sharp cutbacks in technology spending.
Asia’s largest IT services company reported net income of 94.8 billion rupees, versus the 99.04 billion rupees average of analysts’ projections.
Revenue rose 16% to 527.6 billion rupees.
TCS and smaller rival Infosys Ltd. are grappling with rapidly shrinking IT budgets as corporations around the world gauge the potential for a recession.
European companies in particular may pull back more than in the US, given the war in Ukraine as well as heightened inflation across the region.
Europe accounts for about a third of TCS’s revenue.
But the company has been trying to manage wage inflation while shopping newer cloud services to US clients, particularly in the finance sector. The company has shed more than 10% of its market value in 2022, outperforming Infosys.
What Bloomberg Intelligence Says
Tata Consultancy Services may indicate a pullback in discretionary IT spending fueled by rising macroeconomic issues, which in turn could lead to a slowdown in large contract signings.
Though we expect IT spending to remain steady in the financial services vertical, it’s possible that clients in retail and transportation pull back some. Europe could also be an area where new projects see delays, especially those tied to legacy technologies.
North America could continue to show strong appetite for emerging technologies, especially cloud.
– Anurag Rana, analyst
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The June quarter is typically a strong period for the company, said Kotak Institutional Equities analyst Kawaljeet Saluja.
Over the longer term, TCS’s efforts to expand its portfolio of newer digital services should support earnings.
TCS, which employs over half-a-million around the world, the bulk of them in India, doesn’t typically provide a sales outlook.
Infosys in June gave a revenue projection that trailed analyst estimates, signaling slowing demand for software and IT services as companies exit work-from-home arrangements in a post-pandemic world. The company will report earnings later in July.
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