TCS remains watchful as IT sector stares at slowing demand in Europe

As India's IT sector continues to struggle against high employee costs eating into the margins, the big worry for Tata Consultancy Services (TCS) — the country's largest software exporter — is its exposure to Europe. Indian IT companies earn the lion's share of their revenue from the US and European countries.

Among the country's largest IT firms, Tata Consultancy Services' exposure to Europe stands the highest, at almost 30 percent of its overall revenue.

Analysts fear a deep recession in Europe will impact growth for TCS.

On a post-earnings conference call last month, TCS CEO Rajesh Gopinathan had said: "Some clients, particularly in Europe, have expressed concerns about the macroeconomic fallout of the ongoing conflict there... But the predominant sense is that technology spending will be resilient. That said, given the macro level uncertainties, we remain very watchful.”

Many experts have warned that though there is no slowdown in demand, Europe appears to be more vulnerable than North America.

TCS has guided for sequential improvement in margin in the July-September period, after the impact of wage hikes in the quarter ended June. It has guided for a margin of 25 percent in the final quarter of the year ending March 2023.

On trends in demand, the TCS management has told CLSA that the financial services and retail units are stable. There is some softness in manufacturing and life sciences, it added.