Top-tier IT firms including TCS, Infosys, Wipro Technologies and HCL Technologies are likely to

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post an average growth of 7.5 per cent in dollar revenues on a quarter-on-quarter basis during July-September on the back of robust volumes, favourable cross-currency movements and stable pricing, seven technology analysts said.

Infosys will kick off the sector’s earnings season on October 15. As per the estimates, Wipro will post an average growth of 8.3 per cent in revenues, followed by Infosys (7.8 per cent) and Tech Mahindra (7.2 per cent) while Tata Consultancy Services (TCS) and HCL will report 7 per cent growth over dollar revenues in April-June. Analysts expect Cognizant Technology to beat the 6.4 per cent revenue growth target easily.

Traditionally, the September quarter is the strongest for the Indian information technology (IT) sector. Investors will be closely watching the numbers from the sector because during July-September the BSE IT index rose 11.8 per cent, trailing the Sensex’s 13.38 per cent gain as developments like the ban on outsourcing by Ohio, increase in H1B and L1 visa costs and the hike in MAT rate surfaced. In the June quarter, the IT index returned only 1.56 per cent.

After getting caught in cross-currency movements in at least three quarters, tech firms can expect for some relief.

“We expect companies to benefit from the 1.7 per cent depreciation of the Indian rupee and a 50 basis point gain on revenue growth due to cross-currency movements,” said Nitin Padmanabhan, analyst, Indiabulls Institutional Equities.

Infosys and TCS are expected to see a rise in earnings before interest, depreciation, taxes and amortization (ebitda) margins while Wipro and HCL are likely to see declines.

Ashish Chopra of Motilal Oswal said the impact of promotions at Wipro (to nearly 20,000 people in the 3-7 year bracket) and TCS in the second quarter of 2010-11 would curtail margins. “HCL Tech margins will be hit hardest due to the impact of salary hikes from July 1, 2010,” Chopra said.

In terms of bottom line, tech companies are expected to report an average 5.7 per cent quarter-on-quarter growth led by Infosys (15.5 per cent), TCS (7.7 per cent) and Tech Mahindra (6.6 per cent) while HCL is expected to report smaller profits compared with the previous quarter. Wipro, controlled by Azim Premji, is expected to show ebit margins of around 20-22 per cent.

“Unlike the June quarter, we enter the September 2010 earnings season with high baseline expectations. Even as strong FY2011 expectations appear priced in and require validation, early commentary on demand outlook and confidence on demand strength sustenance will likely be in focus,” said Kawaljeet Saluja, analyst, Kotak Securities.

In October-December 2009, when recovery in IT spending began, most of it happened in terms of run-the-business, which is more annuity, maintenance and infrastructure contracts that drive cost efficiency, etc. Over the last two quarters, there has been an uptick in discretionary spending, instilling confidence back in the sector, according to Srishti Anand, analyst, Angel Broking.

Another key thing to watch out for would be whether Infosys raises its dollar revenue guidance from the current 19-21 per cent.

“Given our expectations of a strong quarter and favourable cross-currency movements, we expect Infosys to raise its dollar revenue guidance to 22-24 per cent. However, despite the strong profit growth of 18 per cent quarter-on-quarter (compared with a guidance of 5-7 per cent), we believe that the EPS guidance will be raised only to Rs 117-Rs 121 (from Rs 112-Rs 117) due to the sharp appreciation of rupee in the recent past,” said Surendra Goyal, analyst, Citigroup.