IT firms to report moderate sales growth in Q3: analysts

Seasonal impact of lesser working days and furloughs may result in moderate quarter-on-quarter revenue growth of 2-4 per cent for Indian IT firms, analysts said.

"We expect tier-1 IT aggregate growth to moderate to 3.2 per cent q-o-q, given seasonal impacts of lesser working days and year-end shutdowns/furloughs," Nomura Equity Research said in a report.

TCS and Wipro are expected to lead in terms of dollar revenue growth, while Infosys may lag, Nomura added. Cognizant, HCL Technologies and Tech Mahindra are likely to witness a decent quarter.

Infosys will kick off the earnings season when it announces its numbers for October-December quarter on January 10. HCL Tech will report numbers on January 16 and Wipro on January 17. Tata Consultancy Services (TCS), India's biggest outsourcer, is yet to announce the date of earnings.

Angel Broking said Q3 volume growth will be impacted by lesser working days, furloughs across industries and lower spending in verticals like retail, manufacturing and in services like consulting and enterprise solutions.

With the rupee appreciating marginally (on average basis), the revenue growth in rupee terms could get negatively impacted and trim down the operating margins of IT players by 0-10 basis points q-o-q.

For Q3 FY2014, in rupee terms, revenue growth is expected to be in the range of 1-3 per cent q-o-q for tier-I IT firms and 0.5-2.7 per cent q-o-q for tier-II companies.

IT analysts remain confident of the sector doing well in the following quarters.

"We believe IT services demand is likely to continue to improve in FY2015 led by a better macroeconomic growth outlook. Preliminary discussions with IT companies and clients indicate that IT budgeting cycle for CY2014 is expected to begin on a positive note with signs of improvement in economic activities," Angel Broking said in its report.

Increasing offshore penetration in Europe and pick-up in discretionary spend in the US geography as well as demand for new technologies i.e. Social, Mobility, Analytics and Cloud is also likely to drive demand, it added.

Healthy pick-up in spending in key markets of North America and scope for accelerated market share gains in Europe can support about 15 per cent growth for the industry, which in turn can satiate the growth appetite of all players and reduce pricing pressure, Kotak Institutional Equities said.

"We will watch for commentary on the outcome of clients' budgeting cycles to assess the strength of the demand environment and its sustainability," it added.