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Analysts at Edelweiss expect revenue growth for IT companies to accelerate in the June quarter and an improvement in management commentaries.
“While TCS is expected to lead the pack with 3.1 percent QoQ USD revenue growth, HCL Tech is estimated to grow 2.4 percent QoQ (2.1 percent inorganic) and Infosys 2.3 percent. Wipro and Tech Mahindra are estimated to dip 2.0 percent QoQ each,” the brokerage house said in a report.
Improving economic outlook in the US and higher adoption of outsourcing in Europe are also driving growth. Accenture’s robust Q3FY18 results along-with persisting double-digit growth in outsourcing revenues further bolsters confidence, the report further added.
Overall, it estimates top five IT layers— TCS, Infosys, Wipro, HCL Tech and Tech Mahindra to clock 1.1-4.1 percent quarter on quarter constant currency revenue growth during the quarter.
Having said that, it expects some pressure on the margins as well. We expect margins to fall marginally even though wage hikes and visa costs may be partially offset by rupee depreciation and operational efficiencies.
During the quarter, the euro (EUR), pound (GBP) and Australian dollar (AUD) depreciated versus the US dollar (USD) QoQ, which is likely to impact revenue growth 90-140bps.
“With USD appreciating 2.3 percent, 3.0 percent and 3.7 percent QoQ against GBP, EUR, and AUD, respectively (average rate), we perceive cross currency headwinds of 80-100 bps for top-five IT players,” it said in the report.
In its view, midcaps will continue to outpace large peers. “However, we perceive positive bias to large caps in the medium-to-long run as digital gains scale on account of execution capabilities. We maintain ‘BUY’ on Infosys, HCL Tech and Tech Mahindra and ‘HOLD’ on TCS and Wipro. In midcap space, we prefer Persistent Systems and L&T Technology Services,” the report added.
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