With most IT companies lowering their fourth-quarter guidance, these companies have been under pressure. Vibhor Singhal of Phillip Capital says cross-currency impact is hitting most IT companies post the euro depreciating 10-15 percent. Mindtree and Persistent are, however, facing client clampdowns, he adds.
But most of these companies also hedge their forex currencies, he says. Hence the impact will be just about 2-3 percent. He is bullish on Tech Mahindra, TCS, HCL Tech and KPIT, among others.
Below is the verbatim transcript of Vibhor Singhal's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: It started with Tata Consultancy Services (TCS) and Mindtree and then of course we have seen some more companies like Persistent Systems even KPIT Technologies joining the bandwagon. What do you make of all of this?
A: It is majorly the cross currency impact which is hitting most of the companies and it was widely expected as well. If you look at the dollar-euro movement which has happened over the last two months, euro has depreciated around 10-12 percent in the last two months. This kind of cross-currency impact, which we have already seen in the second and third quarter was expected in this quarter as well. So it is just that the companies are forthcoming and they are coming out with the warning before the results this time rather than probably doing it after results as has happened over the last two quarters.
So for most of the companies, let us say TCS, Wipro as well as for KPIT, it is has been cross currency impact. For Persistent and Mindtree it was a specifically some clients ramp down issues so Mindtree has guided for a ramp down in retail clients whereas Persistent for a small ramp down in the product engineering space. If you separate the Mindtree and the Persistent issues, it is majorly the cross currency impact and yes of course some clients specific issues for these two companies.
Ekta: How have you tweaked your estimates for the coming quarter?
A: The estimates would not be that great. I mean it just may be a one to two percent impact. If you see many of these companies do hedge their forex currency, in some to a large extent as well. As in the case of TCS we expect that the impact is probably around 275 basis points in revenues. However, that will also translate into higher other income because of hedging impact. So the impact on most of the companies will be in the 1-2 percent range only in terms of EPS impact.
Ekta: What are your current picks within the IT space if you have to also put it in terms of your top picks on a priority basis in terms of earnings the best earnings to may be the least or the worst?
A: Among the largecaps we prefer Tech Mahindra, TCS and HCL Tech in that order and among the midcap space we like KPIT and NIIT.
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