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Infosys may kick off the third quarter earnings season on an optimistic note as analysts expect the company to up its full-year guidance for the second time in four months.
Buoyed by the return of co-founder N.R. Narayana Murthy and growing demand for software services globally, the company is set to raise its full-year revenue growth forecast to 11-12 per cent from 9-10 per cent earlier, according to leading brokerage firms.
Murthy effect “The return of Murthy to Infosys has raised hopes on the medium-to-long-term prospects of the company. Based on our expected revenues in the third quarter, we expect the company to increase the guidance range,” Dipen Shah, Head-Private Client Group Research, Kotak Securities, said in a research report.
However, Q3 earnings may be modest for Infosys and its rivals Tata Consultancy Services, Wipro and HCL Technologies largely due to the holiday season and furloughs in most western markets. A furlough is a temporary lay-off of some employees.
“We think TCS and HCL Tech will point to a healthy demand environment, while Wipro and Infosys will remain cautiously positive,” JP Morgan analysts Viju George and Amit Sharma, said in a research report.
According to consensus estimates of leading brokerages, the top four IT companies are expected to report revenue growth of between two and four per cent in rupee terms on a sequential basis.
Rupee value However, the rupee appreciation of 1.3 per cent vis-à-vis the dollar may compel these companies, with the exception of TCS, to report forex losses, thereby impacting their profits.
Profits are likely to show a mixed trend. Indian companies earn a lion’s share of their revenues in dollars and, hence, any rupee uptick tells on their margins and profits.
IDBI Capital, in a research report, suggests that Infosys, Wipro, HCL Tech and Tech Mahindra may report forex losses ranging between Rs 52 crore and Rs 218 crore.
On the other hand, the TCS management had indicated to analysts in December that the company could record a forex gain of about Rs 150 crore largely due to its exposure to ‘range forward options,’ a forex contract that uses a range of exchange rates rather than a single rate.
More than the Q3 numbers, analysts are keen to know management views on how 2014 would shape up for the $108-billion IT industry. “Company management views on translation of US macro improvements into better US demand, especially in discretionary spend areas, would be keenly watched,” said a note from Nomura Equity Research.
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