The $150 billion Indian Information Technology (IT) industry is expected to post a muted financial performance for the third quarter of the current fiscal given the holiday season and a weaker business environment even as 2017 may well be approached with cautious optimism. The third quarter between October and December is traditionally a weak period for the Indian IT industry and for major companies like TCS, Infosys, Wipro and HCL Technologies, the growth is expected to be flat.

Brokerage house Kotak Institutional Equities in its report said, “We expect weak revenue growth for Tier 1 players, due to usual end-of-the-year furloughs and multiple factors that have dragged growth in 1HFY17, will continue to persist, especially weak financial services spending and captive shift and insourcing. In addition, contract specific factors will also have a bearing.”

In the current environment, the Indian IT industry is expected to post growth rate in single digits even with Nasscom lowering its projection for FY17 to 8-10%. Companies such as TCS, Infosys and Wipro have also projected growth rate of below 10%.

Ambit Capital in its report said, “We expect organic constant currency revenue growth of Top-6 Indian IT companies to be in the range of (0.2%)-2.8% on a quarter-on-quarter basis.”

At the same time, the operating profit margins for the Indian IT companies are unlikely to be under any kind of severe pressure and are expected to hold on to their current levels.

According to JM Financial, most players surprised positively on margin in the second quarter of the fiscal despite the subdued volume growth due to a tighter bench plus manpower costs management.

“We expect this to sustain as hiring remains opportunistic with an active control of the staffing mix, though the seasonal volume softness would be a drag,” it said.

Kotak Institutional Equities felt that the margins would be stable to modest decline on a sequential basis. “On Y-o-Y comparison most companies will report decline in margins due to appreciation of Indian rupee against most currencies except US dollar and continued pricing pressure in core business,” it said.

However, the key trends to watch for the Indian IT companies would be on the new policies in the US by President Elect Donald Trump and the likely slowness in the overall spend on IT.

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There are indications that US could be more stringent on the use of H-1B visas through new legislation and this could have an impact on the Indian IT companies.

Though there are few positives for the Indian IT industry in calendar 2017. Motilal Oswal in its report said, “There is a case for a rosier picture come FY18, given that macroeconomic challenges that resulted in a deterioration of performance through FY17 aren’t expected to impact FY18 with the same force.”