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Indian IT firms expected to declare Q1 report

Indian IT firms are expected to report a muted growth in the Q1 hurt by wage hikes, visa fees, stronger rupee & slower pace of large deal closures.

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DQC Bureau
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Indian information technology firms are expected to report a muted growth in the first quarter hurt by wage hikes, visa fees, stronger rupee and slower pace of large deal closures amid uncertainty surrounding protectionist measures in the United States.

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Analysts expect the country's largest IT services company Tata Consultancy Services to report a constant currency sequential growth of 2-3%, while Infosys is expected to grow between 2-2.8%. Wipro is expected to post a fall of 0.8-1.4%. HCL is expected to outpace most of its rivals with a growth expectation of between 2.6 and 3.3%.

Last month, Industry body National Association of Software and Services Companies (Nasscom) projected software export growth in fiscal 2017-18 at 7-8% in constant currency, down from 8.6% last year.

"First quarter is likely to be the weakest 1Q since sub-prime crisis. However, shouldn't be a big surprise to investors," said Yogesh Aggarwal, head of research at HSBC, in an report. "The US deal momentum is still slow with visa and protectionist noise, Europe is much stronger, but won't fully offset US weakness."

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The deal momentum, according to analysts, have been weak across the board in banking, financial services and insurance (BFSI) sector and the retail sector. Any pushback in deals will weaken growth momentum, they say. IT services firms are hoping that digital deals will offset decline in traditional services.

"Poor large deal wins and ramps across the board should drive an uninspiring 1Q earnings season. The Jun-17 quarter is likely to miss the seasonal strength of the quarter with organic constant currency growth ranging from -3% to 2%," said CLSA analyst Ankur Rudra in a report titled - Dry spell in June quarter.

The market will be on a watch out for any cyclical upturn visible in the results, outlook on margins in light of rupee appreciation, pricing pressures and need to change onsite staffing given the US immigration tightening, according to Nomura analyst Ashwin Mehta. Edelweiss analysts Sandip Agarwal and Pranav Kshatriya said margins would be under pressure this quarter.

With respect to TCS, analysts are watching out for comments on pick up in BFSI in the US, large deal momentum and the traction in the digital business. The market is also keenly watching for commentary on possible buyback by Infosys.

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