While Indian software exporters stand to gain from a depreciating rupee this quarter, IT analysts are expecting a lukewarm performance in terms of volumes.
For the third quarter, analysts are projecting a low-mid single digit growth in volumes, due to a deteriorating macro-economic climate. Losses on hedges may also prove to be a major dampner for some, during the October-December period.
TCS, while likely to outperform peers in revenue growth, may be most affected due to its hedging position in Q3, according to a wide cross-section of analysts. That Infosys will deliver a strong performance, and Wipro will lag behind, seems to be a common consensus. Opinion on HCL Technologies, however, remains divided.
Says Shashi Bhusan, an analyst with brokerage firm Prabhudas Lilladher: ?We expect tier-1 Indian IT companies to deliver low-to-mid single-digit volume growth. This quarter has witnessed the strongest tailwind from the currency depreciation ever, with the exception of Q3FY09. We expect Indian IT companies to see tailwind of 300bps in Q3 this fiscal.”
?We see Wipro and TCS as the worst-affected due to high rupee and Great Britain Pound exposure. High hedge book positions of TCS ($2.6 billion) and Wipro ($1.7 billion) would be a drag at the bottom-line,? he adds.
Despite forex losses restricting EPS upgrade, TCS? upbeat commentary on demand, broad-based growth outlook, hiring, and timely closure of IT budget from clients is still making it the best bet in the Indian IT sector, says a note from IDBI Capital put together by Pratik Gandhi.
While Infosys had said that it would manage to meet only the lower end of its 3-5% revenue growth projection this quarter, analysts are expecting it to do better than the mid range of its guidance.
With a thin hedge book at $742 million, Infosys may even perform better than TCS. Wipro, on the other hand, is likely to witness an erosion of approximately 1.5% in US dollar revenue due to cross currency movements and a negative impact on profit after tax resulting from its hedging position.
?We expect Wipro to lag peers in terms of operating performance in near term. We do not see an opportunity for earnings upgrade post Q3FY12,? says Bhusan.
Among mid-caps, MindTree and Hexaware are being touted as good bets. MindTree’s renewed focus on core-business in the last two quarters has pushed its performance ahead of peers, analysts feel.
Although the advent of the fourth quarter will bring more visibility into client spend, experts and corporate leaders are not up beat about the possibilities.
Says Sanjeev Hota, senior analyst with brokerage firm Sharekhan, ?From our recent conversation with the IT companies, everyone indicated a flat to marginally down IT budget next year, except for TCS, which sees It
budget to be marginally up. Everything will depend on the current macro scenario. If the environment is not going to improve, client will not spend even if they have the budget.?
Recently, Infosys had said that momentum of new business had fallen through the year, and that there was a likelihood of things slowing down to the pace of the last recession in 2008-09 going forward.
?While we will have visibility into budgets in January, there will be no great visibility on the spending. Next year is going to be a very challenging year. It could be similar to 2008-09. Growth could be slower,? V Balakrishnan, Infosys chief financial officer had told FE.
