A weak rupee coupled with robust demand trends in the US may propel frontline IT companies to report a 2-7 per cent rise in dollar-denominated earnings, according to top brokerage firms.

All indications are that Tata Consultancy Services and HCL Technologies may outperform, while company-specific issues could cause Infosys and Wipro to fall behind the pack in a traditionally strong second quarter, brokerages have noted. HCL Tech follows July-June as the accounting year.

“We expect sequential revenue growth for Indian IT companies to be helped by a ramp-up of large deals. Underlying drivers of growth, that is developed markets and infrastructure management, remain intact. TCS will lead the industry with 5 per cent organic, sequential revenue growth rate (in constant currency terms),” Kotak Institutional Equities Analysts Kawaljeet Saluja, Rohit Chordia, and Shyam M, said in a research report.

Rumit Dugar, IT Analyst with Religare Institutional Research, said that TCS’s Bangalore-based counterparts Infosys and Wipro may record quarterly revenue growth of 2.5 per cent and 2.2 per cent, respectively. AK Prabhakar, an independent analyst, and some others said they were confident that Infosys is on the path to recovery, as it has managed to stem attrition at the top ever since Vishal Sikka came on board as Chief Executive Officer.

Wipro’s numbers would also be keenly watched, as the company had guided for growth in the range of 1.7 - 4 per cent for the second quarter. “I think the Q3 guidance from the company will be in the range of 2-4 per cent,” said Prabhakar.

Falling rupee

It may be recalled that the rupee has depreciated by 2.85 per cent vis-a-vis the US dollar in the three months ended September 30, while the Euro has strengthened by 5.5 per cent compared to the Indian currency.

The depreciating rupee is good news for software companies, as a lion’s share of their revenue comes from software exports to the US.

However, the appreciating Euro is a spoiler for companies such as TCS and Infosys, given that they have significant exposure to Continental Europe.

On the margins front, analysts anticipate a mixed bag. Manik Taneja, research analyst at Emkay Global Financial Services, expects Infosys and TCS to report sequential improvement in margins.

“Wipro and HCL Tech will see margins declining sequentially on account of wage increments during the quarter,” he added.

Several technology companies dish out promotions and increments to their staffers in the second quarter.

The earnings season will start on October 10, when Infosys unveils its Q2 numbers.

Related Topics
comment COMMENT NOW