Q2 review: BFSI, Retail pressure seen on TCS, Infosys

Analysts expected India's IT sector to report growth but flagged banking & financial services (BFSI) vertical as the weakest link. The fears have come true. 

As expected, Tata Consultancy Services (TCS) and Infosys have recorded muted revenues from BFSI as well as Retail. 

"The second quarter of current fiscal will be the weakest September quarter for Indian IT in the past 8 years. Overall, growth will be affected by broad based weakness in banking financial services and insurance (BFSI) in the United States, weak healthcare and delays in projects across many clients, Kotak had said before these two announced their results.
  
TCS' revenue from BFSI  were at 40.4%, unchanged from preceding quarter, but declined 1 basis point from 40.5% in Q2FY16. Infosys recorded revenue from BFSI to 33.1%, compared to 32.8 in Q1FY17 and Q2FY16 respectively. 
 
In regards to Retail and CPG, Infosys revenue remained flat at 14.9% yoy. The company recorded 15.5% revenue growth in Retail and CPG segment in June 2016 quarter.
 
TCS’ retail and CPG revenue stood at 13.4% this quarter, from 14% in Q1FY17 and 14.1% in Q2FY16.  
 
In first quarter, Infosys had recorded weak performance in some segments like consulting and package implementation and Finacle – platform for digital technology solutions for the BFSI sector.
 
Also, Infosys recently lost its important BFSI client Royal Bank of Scotland which led to it ramping down 3,000 jobs in India. 

Analysts at Motilal Oswal said,” Uncertain macro limits confidence to proceed with project based IT spending that is discretionary in nature, especially in verticals like BFSI and Retail.”
 
For TCS, they said, “TCS’ exposure to both BFSI and UK is slightly higher than peers, implying that performance in near term may not see any sharp revival.”
 
Both companies however, have surpassed analyst expectations in terms of net profit. 

Infosys saw net profit rising by 6.12% yoy to Rs 3606 crore, while TCS recorded 8.37% yoy growth to Rs 6603 crore.