The third quarter of FY13 would be muted for the IT industry with delayed decision makings and lower margins due to wage hikes, and as the appreciating rupee continued to impact the sector.
However, analysts expect the next quarter (January-March) to be better, as contracts would start flowing in, while the rupee would be a factor to watch.
Traditionally, the October-December quarter is a cyclically weak quarter for the IT sector.
Apart from seasonality, Hurricane Sandy — which resulted in shutdowns — also had an impact, brokerage firm Kotak Securities said in a note.
“This time also it’s going to lull quarter this time too. The holiday season outside the country that resulted in a lower number of working days, while furloughs seen in the banking and financial services space and Hurricane Sandy also had its impact,” said Ankita Somani, Research Analyst (IT and Telecom) at Angel Broking.
“While we have recommended a hold on the top three IT companies, growth will be tepid,” said Gaurang Shah, Assistant Vice-President, Geojit BNP Paribas, adding a sizeable number of clients are being advised to ‘book profits.’
“Amongst the top IT companies, we expect revenue growth to be comparatively slower for the December quarter, Vimal Gohil, analyst with Asit C Mehta, said.
Tata Consultancy Services (TCS), the country’s largest software exporter, is expected to post a 3.5 per cent growth, and HCL Technologies, a 3.1 per cent growth in the December quarter.
Infosys may post higher revenues on consolidation of Lodestone, the Zurich-based company it acquired in September, analysts said, adding these are on quarter-on-quarter basis. Infosys will kick off the earnings season, with the announcement of third quarter results on January 11.
Wipro is expected to post a 1.5 per cent growth, while concerns around Infosys missing or further reducing its guidance for FY13 from 5 per cent remains, due to delays in closing outsourcing deals and spending cuts by its BFSI clients, according to Bank of America Merrill Lynch.
Mid-cap companies
An analysis by Business Line shows that mid-sized IT companies have given an average 50 per cent returns over 1 year, compared to top IT companies where an investor got an average of 5 per cent returns.
Amongst mid-tier IT companies, earnings growth is expected to be a mixed bag. Tech Mahindra is expected to post a 5.7 per cent growth in net profit aided by the acquisitions.
Hexaware is expected to report an enormous hit of 28.5 per cent in its net profit due to a sudden project closure at one of its top clients, according to a note by Angel Broking. “At a time when the large companies are struggling, it is difficult for smaller companies whose business again is dependant on foreign clients,” Kishor Ostwal, Chairman of brokerage firm CNI Research, said.
Persistent Systems and MindTree are expected to see a Q-o-Q rise in net profits on account of forex gains.
In case of KPIT Cummins, the profitability is expected to go up by 41 per cent to Rs 57 crore, on the back of higher other income on Q-o-Q, and lower tax rate, coupled with decent volume growth.
Forecast
The fourth quarter (January-March) quarter would be much better quarter for the IT sector, as business is expected to flow in as decision makings are expected to be faster, Sanjay Dhawan, Leader Technology, PwC India, said.
Many in the industry also hope for the same.