Publication of the minutes of the last meeting of the US Federal Open Market Committee (FOMC) early January led to a surge in the National Stock Exchange's technology index, which has gained 9% in a month on expectations of an early resumption to the rate-easing cycle in the world's biggest market for Indian outsourcing. However, the commentary by Federal Reserve policymakers has had little concrete impact on most of its clients, HCLTech CEO C Vijayakumar tells ET, as discretionary expenditures by most US companies remain circumspect.
Still, HCLTech, India's third-largest software exporter with a market capitalization of Rs 4.18 lakh crore, beat analysts' estimates to report a 6.2% net profit growth in the December quarter. In the absence of an immediate resumption in the expenditure cycle, HCLTech would harness deal conversions, a diversified R&D portfolio, and rising demand for generative AI to boost both its top and bottom-lines in the near term, Vijayakumar said in the post-earnings interview. Edited excerpts:
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What is your assessment of the broader demand environment?
Maybe, there is a little more confidence, but it's too early for it to turn into a discretionary spending increase. Right now, we don't see a difference between the last quarter and this one. It is the same environment. Probably, it will take some more time for the macro indicators to translate into (purchase) decisions. The markets are factoring in a quick recovery (due to the Federal Reserve comments). But I would want to look at really what's happening with the client and see how this impacts spending. So, I would say the environment has been the same as what it was in the last quarter.
You said engineering, research, and development (ER&D) demand will drive growth in Q4. Are you witnessing strong demand there?
If you look at the ER&D space, we service a very wide set of industries, starting from technology companies to telecom service providers, telecom OEMs, and a lot of industrial engineering, automotive, medical devices, and semiconductor companies. We have a wide cross-section of industries. Now, in the past few quarters, we have grown the ER&D business. Initially, when we saw growth in the September quarter, we were still cautious. In the December quarter as well, we saw some good growth and I see some growth in the March quarter as well. So, overall, we have seen good momentum in our ER&D business (accounting for 16% of revenue), and it is across industries.
How sustainable is the record margin expansion you have reported in Q3?
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Our margin guidance is 18 to 19%. And we will be within the guided range in Q4 as well. Margins in the December quarter are very high because it's a seasonally strong quarter for the soft...
