Analysts see tepid growth in tier-I tech cos

Our Bureau Bengaluru | Updated on January 08, 2020 Published on January 08, 2020

Infosys stocks were down for the third consecutive day ahead of Friday’s announcement of third-quarter results though analysts said the company may raise its guidance.

“We expect tier-I techs to report QoQ growth of 1.2-3.1 per cent and tier-II techs to report 1.9-3.5 per cent growth in constant currency terms in the seasonally weak December 2019 quarter,” DBS said in a note to its investors. “We expect Infosys to raise its revenue outlook aided by easy arithmetic. TCS’ revenue growth outlook could be pared given weak spending in the financial services, retail and automotive verticals,” DBS said.

Tier-I tech companies should see a slight moderation in YoY constant currency growth, possibly marking the fourth consecutive quarter of growth moderation. Barring a few companies under coverage, all others are going to see YoY declines in EBIT margins. Tier-II tech companies continue to see a higher margin hit due to the industrialisation of digital, increased offshoring and supply-side pressures leading to higher attrition/wages, said the note.

Infosys guidance

Infosys, which will kick off the earnings season, may raise its revenue growth guidance given its easy arithmetic. Wipro may guide for 1-3 per cent constant currency revenue growth, the note said.

Motilal Oswal also said that growth is expected to be tepid across tier-I, while some mid-caps are expected to shine. In a seasonally soft quarter, higher-than-usual furloughs and caution in key verticals (BFSI, retail) will create a further overhang on growth.

“We expect tier-1 to deliver tepid organic growth of 0-2 per cent (CC), with Wipro/TCS leading/lagging the pack. Including inorganic contribution and cross-currency tailwind, tier-1 should report growth (USD) of 1.3-3.5 per cent,” the note said.

Deal wins and commentary around the pace of deal pipeline conversion will be the other key monitorable on the demand side, Motilal Oswal said. “While verticals should remain tepid, we expect a tactical retreat in some horizontal trends where public cloud repatriation should drive growth.” India Nivesh, in its note, said USD revenue is expected to rise 2.5 per cent QoQ with CC revenue growth likely at 2.4 per cent.

Indian IT’s increased investments in re-skilling, localisation/near-shore, platforms and partnerships continue to augment its digital prowess with increasing penetration across the portfolio.

“Headwinds such as tighter cost controls by enterprises/clients (particularly in large BFSIs), and elevated onsite metrics (localisation, sub-contracting) persist. However, we expect a steady 2020 as reflected in strong deal pipelines and continuity in large deal wins,” India Nivesh said.

Published on January 08, 2020
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