The third quarter results for the IT sector are expected to impact revenues, due to seasonal weakness, client furloughs and the recent floods in Chennai.
As TCS looks to kick off the third quarter results on January 12, analysts are expecting a 1.1 per cent revenue growth (in constant currency) in the quarter on a sequential basis, after factoring in the adverse impact caused by the recent Chennai floods, coupled with a seasonally weak quarter, wherein clients look to firm up their next fiscal budgets and lower working days due to holidays.
According to Ashish Chopra, IT analyst with Motilal Oswal, the industry will be looking at TCS’ performance in some of its service lines such as energy and utilities, telecom, Latin America and Japan. “An uptick in these verticals will be crucial for growth coming back,” he said.
This comes in the backdrop of the bellwether posting below expectation on sales front and net profit numbers in the second quarter.
TCS has been consistently outperforming other Indian peers but in the last few quarters, its growth has been slowing down. “We expect top 5 IT players to post revenue growth in the range of 0.7-2 per cent quarterly revenue growth,” said Sandip Agarwal, VP, Edelweiss Securities.
While TCS growth has been slowing, performance of its competitor Infosys has been improving since Vishal Sikka took over as CEO.
India’s second largest software exporter, which will post its quarterly results on January 14, is expected to post 0.8 per cent revenue growth (in constant currency). While Infosys does not provide guidance for a quarter, it had indicated that second half of the year will grow slower than the first half due to some of the above-mentioned reasons.
The country’s third largest software exporter Wipro is expected to meet the lower end of its quarterly guidance, with analysts expecting the company to grow 0.7 per cent, the lowest amongst the top 5 players. This, coupled with a slew of changes in its top management, including appointing Abidali Neemuchwala as the CEO, coupled with performance in one of its key verticals energy and utilities will be watched.
Bright spots Analysts see some bright spots in the midst of all these developments. “With energy woes starting to decrease now, Wipro's performance may finally revive,” said Chopra. According to Emkay Research, revenue performance in top clients will be watched.
Analysts believe that the companies can expect some respite in the form of tailwinds due to the depreciating rupee. The rupee depreciated 2.6 per cent, when compared to the previous quarter. The extent of this tailwind is uncertain, as companies bill in a basket of currencies such as US dollar, euros, GBP and Australian dollar.