Will Infosys results revive fortunes of IT sector?

Earnings season is around the corner and markets are expecting the Indian IT sector to turn in a solid second-quarter performance. Analysts are betting on the rupee's depreciation over the last three months and the seasonal surge in volumes, to offer a strong foundation, reports CNBC-TV18's Shreya Roy.

Come Friday, IT bellwether Infosys is expected to kick-off an earnings season that will see resurgence in the fortunes of IT companies, helped by strong growth in volumes. So sure are analysts that IDFC Securities has ranked the IT sector as one of its top picks in the second-quarter.
On average, revenues for the top four firms - TCS, Infosys, Wipro and HCL are expected to grow between 1 and 4.4 percent quarter-on-quarter, a definite improvement from last quarter's negative 1 to 3 percent.
While TCS and Infosys are expected to lead the wave, analysts are a little reserved when it comes to Wipro.
Rikesh Parikh, vice-president, market strategy, Motilal Oswal Financial Services, Bangalore, says, "We are expecting sales growth for TCS to be at 4.1 percent and Wipro to be the lowest around 1 percent. The surprising pattern is expected from Infosys, from a de-growth sequentially last quarter to a growth of more than 2 percent."
Growth in volume is being touted to be the bedrock for growth this quarter. Kotak Securities says this is likely to be in the range of 2-4 percent.
Talking specifics, analysts say Infosys could see an uptick at 3.4 percent, but TCS may see growth of just 4 percent, against last quarter's 5.3 percent.
Barclays says that even on the margins front, Infosys is likely to see an improvement, while TCS will show flat margins on account of on-site ramp ups and intake of freshers.  It further states that Wipro and HCL will face pressure from wage hikes.
Sanjeev Hota, assistant vice-president, research, Sharekhan, Bangalore, says, "The annual wage hikes cycle is due this quarter. So, most companies will take a margin hit, except Infosys, where we expect improvement of 60 basis points."
The key to watch, as always, will be the guidance by Infosys. Markets had responded negatively to its muted annual guidance last quarter. Analysts believe a revision is in the cards, following its recent USD 350 million acquisition of consulting firm Lodestone.
The business environment in Europe and US, CY12 budgets, pricing revisions and signs of improvement in discretionary spending, will set the tone for the coming quarters for the IT sector. Watch the announcement of Infosys results and exclusive interview with the management on CNBC-TV18 on Thursday.