The IT sector is poised to begin its Diwali celebrations ahead of time with the analysts anticipating an impressive second quarter earnings report card on the back of robust business volume growth and a stronger US dollar.
IT bellwether Infosys will kick start the earnings season with its July-September figures on Wednesday, while other sector majors are scheduled to closely follow with their earnings and revenue spreadsheets. Wipro would release its second quarter results on October 18.
A number of brokerage firms and equity research houses have forecast robust earnings and revenue growth for blue-chip IT companies like Infosys, TCS, Satyam, Wipro and HCL Technologies.
The analysts expect an impressive second quarter performance from Infosys on Wednesday, which is expected to trigger a renewed uptrend in not only the IT stocks, but also in the broader market indices, as it would be the first major result announcement for the season.
Global financial services giant Citigroup said in an equity research report that the major Indian IT companies are expected to report an average sequential revenue growth of 10 per cent for the quarter.
"Based on the average exchange rate during the quarter, the depreciation of rupee would further aid the overall growth in the revenues of the top five IT companies," Citigroup analyst Surendra Goyal said.
The analysts broadly expect Infosys, Wipro and Satyam to beat their own revenue growth guidance figures for the quarter.
Infosys has guided quarter-on-quarter revenue growth of 10.9 per cent for the quarter ended September 31, while Wipro and Satyam have put forth a corresponding growth of 9 per cent and 8 per cent respectively.
Domestic brokerage major Sharekhan said in a research note for its institutional clients that front-line IT companies are expected to maintain their robust growth momentum in the quarter given the strong demand environment and depreciation of the rupee versus the US dollar.
However, the impact of the exchange rate fluctuation is likely to be lower in Q2, as the end of the period exchange rate was more or less stable as compared to Q1, analysts at Sharekhan said.
It expects Infosys and TCS to report improved operating profit margins in the second quarter, while Satyam might witness a decline in the margins on the back of an aggressive wage hike effected by the company in July.
The analysts anticipate only partial impact of wage hikes for Wipro and HCL Tech, due to their policy of giving wage hikes in a staggered fashion.
Overall, the impact of wage inflation on margins would be moderate as Indian firms are trying to mitigate the wage pressure by using various margin levers. However, wage inflation has posed a challenge to India's cost-competitive positioning, Goyal said.
The stock performance of IT bellwethers like Infosys, TCS, Satyam were good, with returns of over 15 per cent over the period.
The second quarter results, which are expected to be robust would act as a catalyst for its future stock performance, Citigroup added.
