Amid global financial turmoil, most Indian IT companies led by Infosys and TCS are expected to post sequential revenue growth in 6-11 per cent range because of a depreciating rupee in the first quarter of this fiscal.
In the rupee terms, the top lines of frontline tech stocks are projected to grow in the range of 6.5 per cent to 11.1 per cent sequentially in the first quarter.
"The growth in the top lines is primarily driven by a volume growth of 1-2 per cent, boosted 7 per cent depreciation in the rupee against the dollar during the quarter. In dollar terms, the sequential growth is expected to remain muted during the quarter," brokerage firm Sharekhan said.
Rupee has been sliding against the dollar since the start of April and at present has an exchange rate of about 43.
Sharekhan in its research note said the average exchange rate of Rs 42.8 against the dollar is also above the assumption of Rs 40 made by the domestic companies (Infosys assumed Rs 40.02 per dollar and Satyam Computer Services Rs 40 a dollar).
As of June 30, Rupee stood at 42.84 against the greenback compared to 39.9 on March 31. On a quarterly basis, the rupee has depreciated nearly 4.5 per cent.
"Such a high depreciation in the quarter is likely to have a positive impact on the margins of the companies," Sharekhan added.
In a research note on the IT industry, Emkay Global Financial Services said sequential revenue growth for companies in the sector would be in the range of 1-5 per cent, fueled by rupee depreciation.
Moreover, IT majors -- Infosys and TCS -- are optimistic about the outsourcing trends and roping in more clients in the coming quarters.
On the negative side, profit margins are projected to take a beating from visa cost and hike in salaries for the employees.
For Infosys which would announce its first quarter results on Friday, Emkay Global Financial Services has projected a revenue growth of 5.9 per cent in rupee terms while salary hikes and visa costs could cut down on the operating margins.
According to the brokerage firm, Infosys management feel the outsourcing mood is 'relatively better' as there has not much bad news from the global economy whereas TCS anticipates a diversified clientele to lessen the impact of US slowdown.
Further, most of the tech shares have outperformed the benchmark indices in the first quarter of the current fiscal on account of fall in rupee, extension of tax exemptions for an additional one year and "better-than-expected guidance by IT companies"
"For Infosys and Tata Consultancy Services, the margins in the first quarter of the fiscal are impacted by wage hikes in addition to visa cost," Sharekhan pointed.
It also added that since HCL Technologies and Wipro Technologies had increased their hedge positions in the fourth of fiscal year 2008, the two firms 'may report higher forex losses, given the recent depreciation of the rupee."
Another brokerage company Edelweiss in its recent report pointed out that among the large-cap entities, Wipro and HCL could post 'significant forex losses as a result of their over-hedged exposures ($3.5 billion and $2.7 billion, respectively, as of fourth quarter of financial year 2008) and a predominant proportion of forward contracts in that."
