Strong growth expected for TCS, Infosys, Wipro in Q2: Analysts

PTI Posted online: Sunday, Oct 06, 2013 at 0000 hrs
Mumbai : Big IT firms such as Tata Consultancy Services, Infosys and Wipro are expected to announce strong earnings for the July- September quarter, helped by a steep decline of the rupee against the US dollar and improved demand for outsourcing services, say analysts.

They also expect strong volume growth for companies, supported by the improving demand scenario.

"Volumes for the top 4 companies are expected to rise by 2.5-4 per cent, organically. Margins are expected to improve quarter-on-quarter, largely on the back of rupee depreciation. This is despite salary increments (in select cases)," Kotak Securities Head of Private Client Group Research Dipen Shah said in a report.

Infosys will kick-off the quarterly earnings seasons on October 11, followed by Tata Consultancy Services on October 15 and HCL Technologies on October 17. Wipro is yet to announce the date for second quarter financial results.

The July-September quarter has been volatile, with the rupee depreciating about 11 per cent Q-o-Q against the dollar, on an average basis.

According to analysts, while 1 per cent drop in exchange rate boosts operating margins of top exporters by over 30-35 basis points, the extent of benefit depends upon the companies' hedging policies.

A report by Angel Broking said the revenue growth in rupee terms is expected to be in the range of 13.5-16.5 per cent Q-o-Q for tier-I IT companies.

IDBI Capital said in its results preview: "We expect volume growth to pick up in Q2 against the backdrop of modest acceleration in US economy along with improvement in decision making cycle. We forecast 2.2-5 per cent US dollar revenue growth for Top-5 IT companies in Q2."

Traditionally, Q2 is good for IT companies because of the strong budget flush that happens before close of the annual capex cycle by clients. IT companies are expected to witness budget flush from clients on discretionary, operational and capital spending.

"For tier-II companies, we expect volume growth to be modest at 2.0-5.5 per cent Q-o-Q...dollar revenue growth is expected to be 1.5-5 per cent Q-o-Q," Angel Broking said.

It added that with the rupee depreciating sharply against the dollar, IT companies are expected to deploy the gains towards sales and marketing, mitigation of impact of the Immigration bill and investments in new service lines.

TCS is expected to lead the tier-I pack with 4.3 per cent Q-o-Q dollar revenue growth, while Infosys is also likely to see a good quarter with 4.1 per cent Q-o-Q revenue growth, Kotak Institutional Equities said in its quarterly technology report.