Emkay expects a subdued quarter from IT sector

TCS is expected to report a 2.3% QoQ USD revenue growth while Wipro estimated to report at the top end of it’s 1-3% QoQ growth outlook

For our Tier II universe we expect a 0.4-5.9% QoQ USD revenue growth with Tech Mahindra at the lower end and NIIT Tech at the upper end (aided by recognition of hardware revenues from the CCTNS contract implementation). We expect Hexaware to report a 4.3% QoQ growth, marginally ahead of co’s guidance of ‘atleast USD 87.5 mn’

Margins performance expected to be mixed as we expect Infosys and TCS to report decline in margins sequentially. Wipro and HCL Tech expected to report better margin show on a/c of absence of hedging losses during the qtr/ improvement in profitability of the BPO business respectively. Amongst Tier II companies, we expect good margin show from MindTree during the quarter

We expect Infosys to guide for a 11-13% USD revenue growth for FY13 and an EPS outlook of ~Rs 164-166. We believe that an EPS outlook of >Rs 168 will be taken in positively by the street.

Key areas of investor focus (1) Infy’s FY13 guidance,(2) outlook on client’s IT budgets and improvement in decision making at client end which determines actual spend ratios and (3) hiring trends and campus hiring numbers

Infosys remains the preferred bet in the Tier I coverage universe as the lone ACCUMULATE rated stock in our Tier I coverage universe (post the TCS downgrade in August’11). Amongst Tier II companies, our preferred bets remain Hexaware, MindTree and NIIT Tech.

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