We forecast some pickup in revenue growth (2-4% quarter-on-quarter in USD terms) for Tier-I IT companies?Q2 has historically been a good quarter. While the segment of large BFS (banking & financial services) clients is still slow, regional/ small banks and insurance should help. Retail/manufacturing trends are also positive. Cross currency/pricing headwinds seen in Q1 may not be a big factor this time around.
Decision-making picking up. Accenture reported Q4 recently: outsourcing growth of 18% year-on-year was strong (particularly given the base). More encouraging was the fact that Q4 outsourcing bookings were up 24%, suggesting that decisions are being taken?corroborating recent comments by Indian IT companies. Management comments on deals/decision making are the key to watch out for.
Expect margin-wage hike led declines. We expect margin declines for most companies in Q2: primarily due to wage hikes. INR should not be a big swing factor in Q2, but could start weighing on margins Q3 onwards if the recent INR trend sustains. Hedge and translation related gains/ losses are difficult to forecast given the INR volatility towards end of quarter and lack of adequate data on the same.
Outlook is the key; CY13 to be better?: Stock prices are discounting modest FY13 growth but investors will try to get some initial management thoughts on FY14 outlook. Trends on budgets, decision making, discretionary spend and pricing will be keenly monitored? we expect CY13 to see some acceleration over CY12.
Infosys?expect revenue growth to pick up but EPS guidance to be lowered: We expect Infosys? Q2 revenue growth to accelerate (3.4% q-o-q) but FY13 EPS (earnings per share) guidance is likely to be lowered due to the (i) sharp appreciation in INR? guidance now likely at R53/$ levels vs R55/$ at the end of Q1; and (ii) possibility of the company factoring in some wage hikes.
Top picks-HCLT/Infosys: Decision making seems to be picking up, and we expect decent growth momentum for the sector going into FY14. Infosys (low expectations and signs of business turning) and HCL Technologies (leading growth with market share gains at 13x) are our top picks. TCS has executed well but valuations/expectations are running high. For TechMahindra, we expect organic growth to be sluggish and see risks given the sharp run up (40% in the past two months).
?Citi
