Brokerages bullish on IT sector outlook for this year

Leading foreign brokerages are bullish about the earning potential of domestic IT majors like

RELATED ARTICLES

TCS, Infosys and Wipro saying that the outlook for 2014 is positive despite tepid results that could be seen in the first quarter.

While Barclays is overweight on the sector, Credit Suisse said it has positive outlook for the full year.

"While the March quarter is likely to be seasonally slow, Infosys' recent cautious stance and TCS' muted indications have prepared investors for this and we do not anticipate any negative surprise," Credit Suisse research analyst Anantha Narayan said in a report.

"We expect most companies to sound reasonably positive on the outlook for 2014. The cross-currency movement should also be in a narrow band for the quarter," he added.

There is no specific trend in margins in the January-March quarter. The average rupee value has appreciated marginally so that will not have a significant impact, Narayan said.

Recent cost-cutting measures could help continuing margin improvement at Infosys despite muted growth. Tech Mahindra is likely to be impacted due to wage increases and resetting of one of its contracts with BT, the report said.

Similarly, Barclays expects March quarter results to have a growth divergence for IT service companies with revenue traction for Infosys and TCS lagging that of HCL and Wipro.

"For Infosys, we expect a 0.4% q-o-q decline in dollar revenues with TCS also likely to report a seasonally weak quarter (+2% q-o-q revenue growth). A soft quarter by Accenture also indicated that Q4 may have remained muted for the industry," Barclays said.

However, we believe that demand environment remains strong, which is underlined by the positive commentary from TCS and an increase in revenue and bookings guidance from Accenture. "Within our strategy portfolio, we are overweight on IT services," Barclays' report said.

Barclays expect 2% quarter-on-quarter USD revenue growth for TCS for March quarter. At its quarterly analyst meeting, management highlighted that sequential revenue growth in Q4 FY14 was likely to be weaker than Q3 FY14 due to a decline in rupee revenues.

On currency impact, Barclays said, "We expect the impact of rupee's appreciation on sector EBIT margins to have been minimal given that, on average, the rupee remained mostly flattish during the March-14 quarter."

However, the rupee's sharp appreciation towards end of the quarter could have led to higher-than-expected forex loss for companies such as Mindtree and Tech Mahindra, impacting PAT. We expect a USD 25 mn forex loss for TechM and a USD 5mn loss in case of Mindtree for January-March quarter, it said.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • This is right time for retail investors to enter the debt market

    Quite often, retail investors are ridiculed for entering the equities market in droves, signalling the first signs of a bubble on the Street.

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Arun Nigavekar

Cost of education must be controlled

In India, we pay very little attention to the cost ...

Zehra Naqvi

What imperfections in nature teach man

Each one of us has faced a time when we ...

Dharmendra Khandal

A wondrous world under the ground

Burrows and dens are safe homes for many kinds of ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture