IT cos Q2 revenue to rise on better demand, currency movements

Major IT firms are expected to post up to 4 per cent growth in dollar term revenue in the second quarter of the fiscal on the back of favourable currency movements and improved business demand, analysts say.

"We expect some uptick in revenue growth, with tier-I companies reporting 2-3.5 per cent sequential growth in revenues. Margins are expected to be largely stable," Citi said in its research note on IT Services and Software.

IT major Infosys would kickstart the quarterly earnings season from Friday followed by other sector majors — Wipro, HCL Technologies and Tata Consultancy Services.

"We expect 2-4 per cent Q-o-Q dollar revenue growth with Infosys leading among large-caps on the back of volume growth recovery, cross-currency benefit and higher billing days," ICICI Securities said in its research report.

According to the estimates of brokerages,  in rupee terms Infosys is likely to post a growth of 2.7 per cent Q-o-Q, while Wipro and TCS is likely to post a revenue increase of 3.5 per cent and 1.4 per cent respectively, Sharekhan said.

"Infosys will likely raise FY'10 guidance and markets are factoring in a return to growth and any disappointment could be a negative for the stock or sector," Citi noted.

Earnings of the IT firms, which are mainly exporters are likely to get strengthened as the rupee has remained largely flat against the dollar during the September quarter.

"We expect the rupee-term revenue growth for frontline IT companies to remain largely in line with the dollar-term revenue growth during this quarter," domestic brokerage firm Sharekhan said.

Echoing similar view Bonanza Portfolio Assistant Vice President Avinash Gupta said, "Most companies have hedged the currency positions for Q2FY10 and thus the companies are expected to report a healthier order book."

Brokerages believe alongside revenue the companies' announcement on hiring front would also be looked into by investors as that would signal the expected revival in demand in the longer term.

"The street would be keenly watching on the hiring front (especially for Wipro and HCL Tech) and wage hike review, which would provide confidence to business environment and revenue visibility for FY2011," Sharekhan said.

"We feel pricing pressure is easing as there are early signs of a pick-up in volumes. Any management comments to this effect could lead to a further re-rating of the sector," brokerage firm Anand Rathi said in its Equities research note.

During the July-September quarter the BSE IT index rose by 37.8 per cent, outperforming Sensex, that grew by 16.9 per cent on improved business environment, marketmen said.

Major index constituents also gained ground during the September quarter. Infosys surged 30 per cent, Wipro was up 59 per cent and HCL Technologies was up 83 per cent.