Infosys will kick off the third quarter earnings for IT companies when it announces its results on January 13. Can IT companies throw up some positive surprises?
- Infosys will announce Q3 earnings on January 13
- Rahul Jain feels IT companies may not spring any positive surprises
- Nasscom had earlier reduced its growth forecast for the industry
Rahul Jain, vice president for research at Systematix Shares & Stocks, said he expects that positive surprises from Indian IT companies are still some time away though he remains optimistic of that happening in the future.
"IT has the tendency of coming back pretty sharply. We saw this in 2009. They were the first one who went down in terms of growth performance. There was a lot of pent-up demand that was created that led to a strong performance from 2009 calendar year onwards," he said.
"So I think it can happen but given the data that is available, given the commentary, given the client perception that surprise is at least a couple of quarters away from us."
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Global events like Brexit, weak oil prices and US presidential elections have weighed on the growth of Indian IT sector. Besides, automation, digital technologies and artificial intelligence have also hurt cost-arbitrage competitiveness that Indian IT companies had in the past.
Nasscom, the industry body of IT companies, has forecast that India's IT services sector will likely grow slower than expected this financial year. Revenue from the sector is likely to grow 8 per cent to 10 per cent in constant currency terms in the fiscal year ending March 2017, lower than an earlier forecast of 10 to 12 per cent, the industry body said.
Third quarter earnings outlook
Seasonally, for Indian IT companies, the December quarter is the weakest because of holiday season in its key overseas markets.
Mr Jain of Systematix Shares & Stocks said expectations are "low" from the third quarter earnings of IT companies. "This quarter has the least number of working days. There are also problems in terms of weak ramp-ups and some project cancellations."
"We at best are expecting 2 per cent organic kind quarter-on-quarter growth for our coverage universe for our quarter," he added.
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Among the large cap stocks, the brokerage likes "TCS (Tata Consultancy Services) due to its execution capability", he said. In the midcap space, he likes Mphasis and from the smallcaps, SQS and Quick Heal Technologies.