TCS Q4 results preview: Seasonal weakness will reflect in modest 1.5-2.5% sequential constant-currency (c/c) revenue growth of Tier-1 ITs. We expect a slightly soft but steady 10-11% growth for Indian IT in FY2017. We expect March quarter results and management commentary to lend comfort on Street’s expectations, which in our view are already moderated, realistic and achievable. We believe 1-2% lower growth in FY2017e is captured in the new valuation band—Indian IT stocks are down to 14-18X from 15-20X. The new valuation band implies that stocks are building 10-13% growth as against 11-15% earlier, for a period of 4-7 years. We note that there is potential for growth to pick up from current levels as Indian IT’s participation in digital increases.
We expect TCS to report 2% growth in c/c and cross-currency impact of 50 bps. Cross-currency headwind from 14-15% exposure to GBP (depreciated ~5.5% versus $) will be partly offset by about 4% exposure to Japanese yen (appreciated ~5% versus $). TCS’ Ebit margin in the December quarter was impacted by floods in Chennai. We expect margins to improve by 45 bps q-o-q partly aided by rupee depreciation. Focus will be on TCS commentary on demand, growth outlook and its positioning in digital. We have an ADD rating on the stock.