Software programmers work on laptop computers as they develop applications at an IT solutions office. (Photographer: Kainaz Amaria/Bloomberg)  

Indian IT Companies Set For Best Third Quarter In Two Years

India’s five biggest software services providers are expected to report best third-quarter revenue growth in at least two years in the seasonally weak period, aided by a weak rupee and robust digital sales growth.

An aggregate of expectations from the five companies—Tata Consultancy Services, Infosys, HCL Technologies, Wipro and Tech Mahindra—indicates a sequential revenue growth of 3.6 percent in rupee terms in the December-ended quarter. The data, compiled by BloombergQuint and based on Bloomberg consensus expectations, also suggests a 4 percent growth in operating profit and a 3.9 percent growth in net profit on a quarterly basis.

Out of the five IT companies, Infosys is the only firm where the expected growth in the December quarter is less than the sequential growth seen last year. The quarter ended December is usually slow for software exporters as it’s marked by the highest furloughs in a year during the holiday season in the U.S. and Europe.

What’s Likely To Aid Q3

Analysts expect a steady sequential growth despite the furloughs. Healthy digital growth rates, as witnessed by Indian IT companies in the first nine months of 2018, are expected to sustain in the third quarter, according to broking firm Edelweiss. “A robust demand environment led by digital and transformation deals should lead to a stronger-than-ever deal pipeline and encouraging management commentaries,” the brokerage firm said in a preview research note, adding that an average 2.7 percent depreciation in the Indian rupee and operational efficiencies are likely to aid margins in the quarter.

  • TCS’ profit is expected to rise largely in line with its top line.
  • Infosys’ profit growth could be lower than its revenue growth because of higher variable payments and subcontractor costs which emerged in the quarter ended September.
  • Wipro’s bottom line may gain from a low base as it had recognised a loss from one-time settlement with a key customer in the previous quarter.

What To Watch?

  • Change in guidance for FY19 though analysts expect no material change.
  • Outlook, trends likely to play out in FY20.
  • Impact of global trade tensions, if any.
  • Commentary on changing client requirements.
  • Initial indications on client spending and budgets.

Also read: All You Need To Know Going Into The Third Quarter Earnings Season