India?s top-tier IT services firms are expected to report sequential dollar revenue growth of 4%-6.5% in the three months ended September 2011 ? a somewhat tepid quarter compared to the previous year that saw firms post higher growth numbers amid a buoyant IT spending climate. However, concerns over the US economy and the sovereign debt crisis in Europe have now cast a shadow over India?s $60 billion IT industry.
Brokerage house Motilal Oswal expects a relatively weak Q2 this year. ?The outlook on the global economy continues to weaken and, along with it, the confidence of a ?normal? year for Indian IT in FY13,? noted the brokerage house in a report. ?We expect US dollar revenue growth of 3.9-6.2% q-o-q across the top-tier IT companies in Q2FY12, which is weaker than the 5.7-11.7% q-o-q growth witnessed in Q2 FY11,? it said.
IDFC expects the top-4 companies to report sub-6% sequential US dollar revenue growth. ?We expect Q2 FY12 to be a weak quarter in light of otherwise favourable seasonality. Infosys is likely to lower its FY12 dollar revenue growth guidance by 2% (from 18-20% yoy), which will be a key negative underlining the weakness in demand. In our view, tier-2 companies would report 1-5% dollar revenue growth (versus 5% in Q1 FY12 and 9% in Q2 FY11),? the firm noted.
IDFC said that with rising macroeconomic uncertainty, most companies in the sector will incrementally cite caution. The brokerage house has an ?underweight? stance on the IT sector.
However, not all analysts are pessimistic. Shashi Bhusan of Prabhudas Liladhar said he continues to remain positive on the outlook of tier-1 Indian IT Services, fueled by stronger balance sheet of clients, new technology spending, market share gains and spend from first-time outsourcers. In a report, Bhushan states, ?According to the management, early discussions with clients are not giving any warning signs on IT spends, post the US rating downgrades. We expect volume growth to remain moderate at 3-5% in the current quarter. We expect weakness in Europe, but the US growth remains on track. Our channel checks and management?s interactions hint at improving deal pipeline.?
Analysts see TCS leading the growth among top-tier firms, primarily driven by volumes. Sharekhan sees TCS reporting a 6.1% q-o-q revenue growth, followed by Infosys at 5% and HCL Tech at 4.3%. Kotak Institutional Equities sees TCS and Cognizant leading the tier-I pack, with Infosys and HCL also reporting robust numbers.
?Wipro is likely to lag, though on expected lines. Among tier-IIs, we expect MindTree and Satyam to lead the pack. Adverse cross-currency movements will hit reported dollar revenue growth by 50-80 bps across companies. Overall, we expect 3.5-6% US dollar revenue growth across tier-I names and 0.5-6.5% growth across tier-IIs,? the firm said.
On the margin front, analysts expect strong sequential margin expansion across companies, with wage hike pressures tapering off.