What Nomura expects from Infosys, Wipro, TCS, HCL Tech Q1

Moneycontrol Bureau

Despite getting a boost from the weak rupee, analysts expect first quarter earnings of IT companies to remain subdued on macro uncertainty and soft demand environment.

Infosys will kick off the first-quarter earnings season for the Indian IT-services industry from July 12, followed by other big boys like Tata Consultancy Services, Wipro and HCL Technologies in the next few weeks.

Here's is what brokerage firm Nomura expects from the IT majors this time around:

Infosys: We expect Infosys to retain its FY14 revenue growth guidance of 6-10 percent. Outlook on margin incorporating tailwinds from renewed focus on commoditized services and recently announced wage hikes, will suggest deterioration before an improvement. Cut in guidance or material dip in Q1 earnings before interest and taxes (EBIT) margins below Q4 levels of 23.6 percent will be taken negatively.

Wipro: With the company guiding for parity with industry growth in second half of FY14F, Q2 revenue growth guidance and deal wins would be the catalyst for the stock to perform. Outlook on US and infrastructure management services (IMS) will decide if sales investments are actually starting to bear fruit. We however believe there could be a one quarter delay in revival indications.

HCL Tech: Continuity of strong growth trend in IMS and signs of revival of growth in core software are key items to watch. HCLT was among the few companies that showed INR depreciation benefits in margins, replication of this in coming quarters could lead to upside surprises to street margin expectations, in our view.

TCS: Any moderation in demand or margin commentary at TCS would be taken negatively by the Street and could lead to shrinkage in premiums on valuations, in our view. Management commentary would be keenly watched given TCS indications of a better FY14 and EBIT margin guidance of 27 percent. Growth below 4 percent in constant currency in Q1 FY14 could be taken negatively, in our view, given street acceleration expectations for FY14.

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