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Vishwanath Kulkarni
Moumita Bakshi Chatterjee

Bangalore/New Delhi Oct. 9 Indian IT services firms are expected to post a robust growth for the second quarter (Q2), despite currency volatility. The earnings momentum as a result is likely to be sustained, after a slip in Q1 this year.

Industry analysts expect Tier I companies to outperform their own projections to post 7-10 per cent quarter-on-quarter revenue growth driven by strong volumes for the seasonally strongest quarter. Profits are expected to grow 3-6 per cent sequentially.

In the run-up to Q2 results, the IT stocks have gained by 8-10 per cent in recent weeks.

The market is looking forward to the management comments on the demand scenario in light of the recent developments in the US and also on the pricing environment. An analyst with the foreign brokerage said the companies may not go overboard with regard to their comments on the IT spend outlook in the US, the largest IT market.

Infosys and TCS are expected to report a marginal increase in their operating margins driven by better pricing from several key customers and the SG&A (selling, general and administrative expenses) leverage.

However, companies that effected a salary hike during the quarter such as Wipro, Satyam and HCL Technologies, may report a flat growth on the margins front.

The rupee, which appreciated by about two per cent against the dollar during the quarter, is unlikely to have a major impact on the margins. Because of the dollar depreciation, analysts expect a marginal upward revision in the dollar guidance, especially from Infosys and Satyam.

An analyst with Ambit Capital pointed out that while the rupee on an average had not changed much since the last quarter from a realisation standpoint, the impact on account of translation losses (as the rupee has appreciated about 1.2 per cent on a blended basis) would be cushioned by hedging.

Analysts are, however, watching-out for growth in Banking, Financial Services and Insurance (BFSI) segment, improvement in pricing, and ramp-ups and utilisations.

An analyst with Sushil Finance, Mr Tejas Doshi said that the business conditions remained buoyant despite sub-prime issues and the industry on a whole can look forward to better-than-expected numbers.

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