Teji Mandi Explains | Q1FY22 Review: Strong trend emerges in banking and tech sector

The 1QFY22 earnings season was in line with expectations, owing to the lower base of 1QFY21 and the fact that lockdowns in 1QFY22 were more localised and less strict than in 1QFY21.

Teji MandiUpdated: Thursday, August 05, 2021, 10:03 PM IST
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FY22 has started on a healthy note as damage from the second COVID-19 wave has been much lesser than Q1FY21, a complete washout under the impact of national lockdown.

As per the management commentaries, the demand environment improved post June 2021, led by the easing of restrictions. However, the margins were badly affected by the impact of rising commodity costs and higher inflation.

Crucial sectors of banking and technology reported encouraging signs. While few doubts continue to trouble the banking sector, the IT sector sailed through during the quarter.

Here are the key points that emerged from Q1FY22 earnings.

Technology:

1QFY22 was one of the best quarters for Indian IT services companies. Mid-tier IT companies outperformed their large-cap counterparts. Deal win momentum has remained robust due to cloud migration/digital transformation deals. It has created a strong order pipeline and earnings visibility for the next few years.

Large deal wins at lower margins, wage hikes, and employee additions affected the margins. However, they were partly mitigated on account of lower travel expenses.

Private Banks:

While credit demand continues to remain sluggish, fresh slippage has spiked across banks, with retail portfolios coming under stress. The banks have reported sequential deterioration in their asset quality. The GNPA ratio has increased in the range of 15–31bp across banks. However, the impact has been much lower v/s the first wave.

Collection efficiencies have been improving, which is a saving grace. The restructuring book also remains controlled. And, banks are carrying additional provision buffers, which should limit the impact on credit cost.

Closing Comments

As for the banking sector, collection efficiency remains the key ratio to track. Going forward, provisioning requirements are likely to be reduced for most banks. And, fresh disbursals are also likely to start picking up gradually.

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