India's third largest software services firm Wipro today warned that Britain's exit from the European Union could lead to delays in discretionary spending by clients in the medium term.
Stating that 'Brexit' was on "top of the mind" for Wipro, its chief Abidali Z Neemuchwala said the most immediate impact of the development is on currency.
"In the medium term, Brexit could delay some discretionary spend and create some slowdown in the European Financial Services sector," he said in his opening remarks while announcing Wipro's first quarter results.
Wipro's peers like Tata Consultancy Services and Infosys have also indicated that they are in a "watch mode" even as analysts indicate that technology spending could be impacted, especially in the banking, financial services and insurance segment on account of the UK's exit from the EU.
Wipro has posted over 6 per cent fall in net profit for the first quarter ended June and forecast that its IT services sales would grow less than 1 per cent in July-September.
While the company's IT services revenues met its own forecast, the outlook for the second quarter has disappointed analysts.
Kotak Securities Senior V-P and Head, Private Client Group Research, Dipen Shah said Wipro's results disappointed largely on the margins front and that the revenue trajectory reflects the challenges faced by Wipro in key verticals like energy and utilities as well as in scaling up accounts to larger sizes.
Neemuchwala attributed the fall in margins (to 17.8 per cent from 19.7 per cent in March 2016) to wage hikes, acquisition-related items and headwinds in its India and Middle East business.
"We continue to invest in our strategic themes to transform the business, and gave healthy salary increases to our employees during the quarter," he added.
He further said the company is focused on building a sustainable business model and has completed restructuring its consulting business and is working on "fundamentally changing" its India and Middle East model.
He, however, did not elaborate on the topic.
"We expect the trajectory of growth to build gradually over the course of the year. We will drive operational improvements in Q2 with respect to our operating margins, but we may not see the full benefit of it in Q2 given the impact of 2 additional months of wage revision, but I expect that it will be reflected much more strongly in Q3 and beyond," he said.
The company has won five large deals during the quarter, Neemuchwala said.
