Brokerage firm Kotak Institutional Research expects a stronger December-end quarter growth in information and technology companies across on sequential basis despite seasonal lean period due to furloughs. The earning season will kick-start mostly from next week. 

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

The IT services sector is likely to register a strong revenue growth same as the last year, quarter-on-quarter basis, a report by Kotak Institutional Research suggested. However, the margin pressure would continue in the current quarter too on a year-on-year basis. 

“We forecast strong sequential revenue growth in a seasonally weak quarter, QoQ growth rates will range from 2.6-6 per cent,” the Kotak report said in its IT services Q3 earnings preview. 

The report further said, “However, the picture is not pretty on EPS growth with a range of decline of 15 per cent to growth of 11 per cent on YoY comparison.” 

Strong headcount addition, high fresher intake, high attrition, muted TCVs even as ACV will be strong, are some of the positive takeaways from the research report. 

“HCL Technologies, Wipro and Tech Mahindra will lead the growth among large-caps, while L&T Infotech among mid-caps. We are still constructive on the space although the returns will moderate from here. Infosys, HCLT and Mphasis are our top picks,” the brokerage said in a report further. 

“Wipro, Tech Mahindra and HCL Tech will likely deliver around 4.5 per cent growth in cc terms. We forecast Infosys’ growth at 3.7 per cent and TCS to deliver modest 2.6 per cent QoQ growth.” 

Similarly, mid-tier IT companies will likely deliver revenue growth rate at 5-6 per cent in cc terms, healthy overall with YoY growth ranging 20-34 per cent, moreover, companies will have cross-currency headwind of 20-90 bps due to appreciation of USD against GBP, EUR and AUD, it added. 

On guidance front, the brokerage report sees Infosys to tighten the guidance band to 17-17.5 per cent from 16.5-17.5 per cent earlier. Similarly, HCL tech has guided for double-digit revenue growth and expects it to deliver revenue growth of around 12 per cent in c/c terms for FY2022E. 

In the mid-cap section, LTTS raised the revenue growth guidance after September quarter results to 19-20 per cent and may further up the guidance to 20-21 per cent, the brokerage report said.