The IT sector looks poised for delivery of healthy quarterly earnings in the coming days and all eyes will be on guidance, deal pipelines and outlook on key verticals, among others.
Following strong third-quarter earnings, the sector looks ready to deliver yet another strong quarterly earnings as the pandemic has augmented our dependence on technology while the key lead indicators of the sector remain positive.
"Following the decade-best Q3 growth, we expect an encore with the sector set to post decade-best Q4 sequential performance," said brokerage firm HDFC Securities.
Ramp-up of large deals, broad-based momentum and positive cross-currency will support growth. While growth print is expected to be homogenously positive, divergence in operational performance dashboard is driven by wage increase schedule, accelerated pace of hiring resulting in varying trends in utilisation/attrition, HDFC Securities pointed out.
HDFC Securities expects TCS and Infosys to lead the growth at 3.5 percent quarter-on-quarter (QoQ) constant currency (CC) each, supported by the ramp-up of large deals (PBS, Prudential, Rolls Royce).
HCL Tech, Wipro and Tech Mahindra are expected to post 2.5 percent, 2.7 percent and 1 percent growth, respectively, HDFC Securities added.
"In terms of margin, TCS is expected to outperform within Tier-1. Engineering, research and development (ER&D) companies are expected to outperform operationally too in Q4 within the mid-tier universe," HDFC Securities said.
Brokerage firm Motilal Oswal expects Tier-1 IT companies, barring Tech Mahindra, to report growth between 2.5 percent and 3.4 percent QoQ CC, their strongest Q4FY21 performance in the last five years.
Tier-2 IT should deliver 3.3-5.2 percent QoQ CC growth, except Mphasis and Zensar Technologies, Motilal Oswal said.
In Tier-1, Motilal Oswal expects strong sequential growth trends across all companies baring Tech Mahindra, which will have a soft quarter on account of lower deal wins.
"Growth in TCS and Infosys will be driven by a ramp-up in large deal wins such as Postbank, Prudential, Daimler, etc. We expect Tier-1 IT to grow at 3.6 percent QoQ in USD terms, helped by cross-currency tailwinds," Motilal Oswal said.
The brokerage firm expects Coforge and L&T Technology Services to lead the growth trends in the mid-cap IT space.
"Most companies should report upward of 4 percent QoQ USD growth during Q4FY21. Exceptions will be Mphasis – led by the expectations of double-digit sequential decline in the DXC business, and Zensar Technologies – led by weakness in a top account and project closures in the DFS business," Motilal said.
Brokerage firm Prabhudas Lilladher expects TCS, Infosys, Wipro to lead growth in Tier-1 and Larsen & Toubro Infotech, Mindtree, L&T Technology Services in Tier-2.
"We expect Infosys to guide 12-14 percent year-on-year (YoY) CC revenue growth and 22-24 percent EBIT margin guidance for FY22E. Similarly, HCL Tech can give revenue guidance of 10-12 percent YoY CC and margin guidance of 20-21 percent for FY22E. We expect Wipro to guide 1-3 percent QoQ revenue growth for Q1FY22," Prabhudas Lilladher said.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.