Indian IT firms to report a ‘steady’ Q4: analysts

As client budget for information technology (IT) spends has picked up momentum in the U.S., the largest market for the $154-billion Indian IT industry, the just-concluded March quarter of fiscal 2018 will see India’s top-tier software outsourcing companies show up with ‘steady’ financial earnings, according to analysts.

Traditionally the January-March stretch is a lean period for Indian software-services companies as their clients in key markets such as the U.S. and Europe finalise their IT budgets during the quarter for the next fiscal and revenues do not accrue for the full quarter.

According to estimates by multiple brokerage houses, on a constant currency basis, the top-five Indian IT-services companies are expected to report quarter-on-quarter revenue growth in the range of 1-2.2% for the March quarter of FY18. IT firms use the constant currency method to eliminate the effects of exchange rate fluctuations while calculating the financial results.

Analysts feel margins are likely to be stable for the large IT-services companies during the January-March quarter. “We foresee positive 30-50 basis points (bps) margin movement for IT companies,” noted an Edelweiss Financial report.

As Bengaluru-based IT behemoth Infosys kicks off the IT-earnings season on April 13, announcing its fourth quarter and full year results, the market will be keenly monitoring its revenue guidance for the next fiscal and its future roadmap as its new CEO Salil Parekh completes his first quarter in office. The market’s attention will also be focused on the overall outsourcing demand outlook and client budgets in the banking, financial services, and insurance (BFSI) space, which incidentally is the largest vertical for Mumbai-headquartered TCS that will announce its full-year earnings on April 19.

“With improving economic outlook in the U.S., higher adoption of outsourcing in Europe and digital services gaining scale, revenue acceleration looks certain for Indian IT companies. Also, retail and energy & utility verticals have turned around and growth revival in BFSI fuels strong prospects for IT industry,” said Edelweiss Financial in its research report, adding that it expects FY19 revenue guidance for Infosys and HCL Technologies in the range of 6.5-8.5% and 8.0-10%, respectively.

Rahul Jain, an analyst at Emkay Global Financial Services points out that the annual revenue guidance for 2018-19 of Infosys and HCL Technologies would set the tone for the respective companies and would act as an important read-through for other vendors who have highlighted improved business outlook. Jain expects HCL Tech to project 8-10% revenue growth for FY19 and Infosys in the range of 5-7%.

Shares of TCS were up 4.13% at Rs 3140.15, while Infosys was up 4.15% at Rs 1170.50 during the late afternoon trade on the Bombay Stock Exchange on Thursday. The sensitive index, Sensex, is up 0.57%