Indian IT sector growth to be muted in Q4: Jefferies

“Cross currency will be favourable on dollar revenue and margins stable,” said the US-based securities firm in a statement from New York ahead of the Indian IT majors declaring their financial results for the quarter (Q4) under review and fiscal 2016-17 this month. Though the focus of results will be on the revenue outlook for the new fiscal 2017-18, capital allocation (buyback of shares), progress in digital and pricing will also merit attention in view of constructive guidance and commentary from their US listed peers. 

“As growth outlook for fiscal 2017-18 will be the focal point of results, we expect Infosys to guide for a 7-9 per cent YoY growth in constant currency (cc) terms,” said Jefferies in the statement. The city-based global software major will declare its results for Q4 and fiscal 201617 on April 13 in this tech hub. For Q4, consolidated revenue growth of Infosys is likely to be 1.2 per cent sequentially, 0.9 per cent in cc and 5.5 per cent YoY. “Margins will decline 40bps (basis points) sequentially due to rupee depreciation in Q4 and higher variable pay-outs over the previous quarter,” it said. 

Market has been expecting Infosys to announce a significant buyback and capital allocation strategy, which will be important from its stock price perspective. 

In case of bellwether TCS, Jefferies estimates 1.5 per cent quarterly or sequential growth in dollar terms, 1.1 per cent in constant currency (cc) and 5.8 per cent YoY. “The focus of TCS results will be on stable performance, attention on its CEO commentary,” pointed out the statement. 

Senior executive and former CFO Rajesh Gopinathan took over as the new CEO of TCS on February 21 following the appointment of its incumbent N Chandrasekaran as Chairman of Tata Sons Ltd of the Tata Group. 

Margins of the outsourcing firm are expected to be flat sequentially, with operational improvements and cross currency benefits offsetting the negative impact act of rupee appreciation. 

“TCS could increase its payout ratio to 50 per cent given its healthy cash generation profile. Commentary on growth outlook for FY2018, order book, growth in digital, pricing trends and impact of potential visa reforms on the business will be critical,” asserted the analyst’s statement.