TCS kicks off Q1 earnings season today: 5 key things to watch

TCS will kick off the earnings season for India's beleaguered IT sector

Tata Consultancy Services (TCS), the country's largest information technology (IT) services firm, is set to announce its first quarter results on Thursday, kicking off the earnings season for the sector.  

India's IT sector is facing headwinds due to technology shifts towards cloud and digital, automation, and growing protectionism in its main markets. For the second year in a row, software lobby group Nasscom has predicted that the sector would grow in single digits this year.

Here are five things to look out for in the TCS results

Digital revenue

Accenture, the larger global rival of Indian IT firms, saw digital revenue contributing to over half of its total revenue for the first time. TCS' revenue from digital services stood at 17.9 per cent. Any increase in digital contribution to overall revenue will be looked at as a positive sign.

BFSI and retail business

With a large part of their banking, financial services, and insurance (BFSI) business concentrated in North America and a marked slowdown in business, this sector is likely to affect Q1 revenues. Kotak securities suggests watching out for their insurance verticals in addition to BFSI, expecting revenue growth to be around 2.4 per cent. In addition, the retail industry in the US is undergoing disruption from companies such as Amazon. TCS' view on its retail customers would be closely watched.

Margins impact due to share buybacks

TCS initiated share buybacks worth Rs 16,000 crore in May this year. Analysts and shareholders, alike, are keen to see the decision's impact on the IT major's EBIT (earnings before interest and taxes), with Reliance Securities already forecasting a six per cent hit over the previous quarter.

Visa restriction

While the company has gone out of its way to publicise its employee engagement and 12,500-strong workforce across the US, there is no doubt that visa curbs would affect major projects in the country.

Stronger rupee

Another factor likely to have an impact on profitability would be the appreciation of rupee against the dollar, although the impact might be offset through lower variable compensation payout, says research firm Motilal Oswal.