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Frontline Indian IT companies are expected to put up a steady performance in the second quarter but worsening macro-economic indicators in US and Europe, coupled with cross currency volatility are expected to impact growth going forward.
As Infosys kicks off the second quarter results on October 12, analysts that BusinessLine spoke to opined that top IT companies are expected to post steady numbers in a quarter when companies perform at their best. Infosys is expected to post revenue growth of 5.9 per cent (on a quarter-on-quarter basis). However, like in the past several quarters, TCS is expected to lead revenue growth with 6.2 per cent.
Wipro and HCL Technologies, India's third and fourth largest IT exporters, are expected to post revenue growth of 3.7 per cent and 3.8 per cent, respectively.
According to a Nomura report, with the Purchasing Manager's Index (PMI) in the US, which hit a 12-month low in August, coupled with jobs data weaker than last year are areas of concern as it could have a spillover effect on clients who outsource.
“Recovery in the US market is crucial and we believe that those hopes could see some tempering in the second half of the fiscal year due to weak macros,” said the report. Other analysts, however, have a different point of view and believe that while data from the US are important, outsourcing has its own dynamics. Demand continues to be strong, opined Edelweiss IT analysts Sandeep Agarwal and Pranav Kshatriya. Agreed Sarabjit Kour Nangra. “Order books are strong and there is no great discomfort at present,” she said.
However, analysts caution that pricing in traditional outsourcing services such as Application Development Maintenance and Enterprise Application Services and to some extent even BPO will see flat margins. Efforts by companies to get into new areas such as digital is still in very early stages and it will take some time for that business to contribute meaningfully.
Dollar impact There is also the issue of the US dollar depreciating against some currencies, which are bound to have an impact on IT exporters. For example, the Australian Dollar (AUD) and Brazilian Real (BRL) have seen sharp depreciation in the range of 7-14 per cent. HCL has already cautioned that in the September-ending quarter, currencies will have an impact of 80 basis points. This cannot offset the currency gains from GBP and Euro, analysts said.
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