Industry

IT firms may report muted Q3 growth

TCS likely to report its weakest QoQ growth, says analysts

Indian information technology (IT) firms are likely to start new year with a muted growth, when they announce their third quarter results following to a seasonally-weak quarter and continued challenges in the the banking, financial services and insurance (BSFI) and retail verticals.

Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro and Tech Mahindra are likely to report a tepid revenue growth in constant currency (cc) terms on a sequential basis with improved operating margins due to weaker currency and optimisation measures, according to analysts.

“We expect 0.7-3% Q-o-Q cc growth across top tier IT services companies in seasonally weak 3Q with Tech Mahindra leading helped by a ramp up of AT&T deal. We expect a slight sequential margin expansion in most cases with Infosys leading at over 50bps,” said Jefferies Equity Research.

Infosys will announce its third quarter results on Friday January 10, 2020 and the outcome of investigation into whistleblower complaints by law firm Amarchand Mangaldas will be eagerly anticipated.key to look out for.

TCS is expected to report its weakest Q-o-Q cc growth among top tier IT companies at 0.7% (1.4% in U.S. dollar growth) due to weakness in BFSI and client specific headwinds in retail, according to Jefferies, while for Infosys, it expects 0.8% Q-o-Q cc growth (1.1% U.S. dollar) in 3Q, meaning that YoY cc growth will fall just below 10% for the first time in five quarters.

“In a seasonally soft quarter, higher-than-usual furloughs and caution in key verticals (BFSI, retail) will create further overhang on growth, in our view,” Motilal Oswal wrote in a note.

According to Motilal Oswal, major currencies like pound, euro and Australian dollar appreciated (approximately 2%-7%) sequentially, resulting in a cross-currency tailwind of 20-150 basis points (bps). Only NIIT Tech should face a cross-currency headwinds of 110 bps.

TCS is yet to announce its board meeting to consider the third quarter results. However, the management of India’s largest IT firm is now relieved that former Tata Sons chairman Cyrus Mistry has decided not to seek directorship in the company.

TCS on Friday January 3, 2020 had filed an appeal in the Supreme Court against the NCLAT order directing reinstatement of Mr. Cyrus Pallonji Mistry as director of the company for rest of the tenure.

However, Cyrus Mistry on Sunday January 5, 2020 in a statement titled, “Not a quest for position or power” said that he will not be pursuing the executive chairmanship of Tata Sons, or the directorship of TCS, Tata Teleservices or Tata Industries inspite of a favourable NCLAT judgement.

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Printable version | Feb 22, 2020 10:49:04 PM | https://www.thehindu.com/business/Industry/it-firms-may-report-muted-q3-growth/article30496606.ece

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