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  1. IT Sector Q1 FY17 Preview: Markets to focus on impact of ‘BREXIT; Infosys, Mindtree among top picks

IT Sector Q1 FY17 Preview: Markets to focus on impact of ‘BREXIT; Infosys, Mindtree among top picks

Sequential margins are likely to vary and should come in lower for most firms on the back of wage hikes and higher visa cost

By: | Published: July 5, 2016 12:50 PM
Information technology, Q1 preview Margins of Indian IT companies may face some heat in the first quarter of 2016-17 on account of wage hikes and higher visa cost. (Reuters)

Margins of Indian IT companies may face some heat in the first quarter of 2016-17 on account of wage hikes and higher visa cost. According to Reliance Securities, IT firms may post a combined 2.6 per cent sequential rise in dollar revenue for the latest quarter ended June 30, 2016. The brokerage house expects the Top-5 IT firms to register 2.4-2.9 per cent quarter-on-quarter (qoq) organic growth, with Infosys likely to lead.

Mid-sized IT firms may post 1-4.4 per cent qoq revenue growth in dollar terms except KPIT Technologies which may see a 3.6 per cent qoq decline. Persistent Systems likely to lead the pack, aided by the IBM deal. Owing to appreciation of EUR, GBP and AUD against USD this quarter (based on the quarterly average), Reliance Securities expects IT firms to see a positive cross-currency impact of 20-60bps. Thus, on a constant currency (CC) organic basis, revenue growth is likely to come in at 2-2.4 per cent qoq for top-tier IT firms and at 0.5-4.2 per cent qoq for mid-sized IT firms.

The brokerage house in a reserach note said, “Sequential margins are likely to vary and should come in lower for most firms on the back of wage hikes and higher visa cost, the trend is largely lower on a yoy basis with company-specific exceptions. In our view, the focus of the street will be more on near to long-term business impact of ‘BREXIT’, which we expect to keep IT stocks subdued over the next 2 quarters.”

In the present market scenario, the brokerage house is bullish on Infosys among the large-caps space. On the other hand, Reliance Securities is positive on Mindtree, Persistent and eClerx among the midcap.

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