HCL warning notwithstanding, IT Q2 revenue seen strong

Moneycontrol BureauCome Monday, and all eyes will be on the IT sector, as Infosys -- one of the bellwether companies in the sector -- will declare its second quarter earnings.Traditionally, second quarter is the best quarter for the sector but with HCL’s revenue warning (Read: HCL warns of tepid Q1 revenue on currency, client issues), doubts have started creeping up in investors mind.  A recent report by Reliance Securities states that revenue growth for the sector is likely to accelerate in the second quarter of FY16.With the sector focusing on transition to digital technologies, the relevance and pervasiveness of the digital will continue to increase going forward, it says. According to NASSCOM & McKinsey’s ‘Perspective 2025’, digital is expected to comprise 80 percent of incremental investment and its share in Indian IT is expected to increase from 10 percent in 2014 to 35 percent in 2020 and 60 percent in 2025. the industry is "well on track" to grow from USD 132 billion in FY 2014-15 to USD 225 billion by 2020 and further touch USD 350 billion by 2025. “The industry is well on track for growth. There is a continued progression of double digit growth despite expansion of base. But below the calm waters, there is a lot of churn happening as well and companies will have to do a lot of things to address the challenges as well," Nasscom President R Chandrashekhar told PTI recently.Challenges range in nature, from geopolitical to regulatory to the need for innovation and disruption, he said.Reliance Securities is upbeat on largecap IT stocks like TCS, Infosys, HCL Technologies and Mindtree and Eclerx from the midcap space. The house has upgraded KPIT backed by expectation of improvement in profitability and Polaris with expectation of improvement in margins and growth.For the second quarter, TCS and Infosys would lead the growth in the tier I space, with dollar revenue growth of 4.8 percent quarter on quarter (Q-o-Q) at USD 4232 million in second  quarter and 3.2 percent Q-o-Q at USD 2329 million respectively, according to the brokerage. Mindtree and Hexaware would lead the growth in the midcap category states the report. Mindtree’s revenue is expected to grow at 6.7 percent (4.6  percent organic) at USD 165 million and Hexaware’s revenue is expected to grow at 4.2 percent Q-o-Q at USD 126 million.Meanwhile, a depreciating rupee is a sort of blessing in disguise for the technology companies that earn revenues in dollars because every dollar earned through exports means more rupees added to the bottom line. Also the wage and currency headwinds are likely to get mitigated by rupee depreciation.