The quarter-ended September 2013 is likely to be one of the best quarters for the IT sector in recent times, both at the stock markets and the business level. The renewed strength comes on the back of an improving business climate in the US and a depreciated rupee.
Results announced by two leading IT companies for the quarter, Infosys and TCS, in terms of volume growth and dollar revenue growth, paints an optimistic picture for upcoming results by HCL Technologies (on Thursday), Wipro and Mahindra Satyam.
Good volume growth, capacity utilisation and rupee depreciation benefits suggest that the entire industry may post good numbers for the quarter.
While the volume growth for TCS stood at 7.3 per cent, that for Infosys during the quarter rose by 3.1 per cent and not only they came above expectations they also came as a reassurance to the free run these stocks had during the quarter at the stock exchanges.
“Above expected volume growth for the two leading players and good capacity utilisation suggest that the numbers will be good for the all players,” said Rikesh Parikh, VP, institution corporate broking at Motilal Oswal Securities.
Also, Infosys’ revision on guidance of 9-10 per cent revenue growth for the current financial year has raised the optimism not only for the company but also for the industry. While Infosys saw its dollar revenue rise at 15 per cent on a year-on-year basis, Tata Consultancy Services (TCS) saw its revenue grow by 17 per cent during the quarter. If Infosys added 68 clients during the quarter and five clients of $50 million plus during the quarter, TCS saw three more clients in the $100 million plus category.
The volume growth and addition of clients by two largest players is a reflection of the improving environment in US and growth coming back to the economy that contributes the highest revenue for the top Indian IT companies.
Market experts are confident that Wipro and HCL Technologies too will post good results and will benefit from volume growth.
Parikh said that the industry has benefited from record flow of new contracts. “The outperformance (at the stock markets) was led by the rupee’s depreciation and a recovery in the operating environment following an improvement in the USA and the euro zone,” said Parikh.
As rupee continued to slide during the quarter and the US economy showed good numbers along with an improvement in business sentiment, the companies in the Indian IT sector witnessed a strong surge at the markets.
While TCS rose by 46 per cent between June 30 and October 15, Infosys rose by 34 per cent. HCL Technologies and Wipro too jumped 50 per cent and 46 per cent in the same period. Even mid-sized player Mindtree saw its shares zoom 65 per cent during this period.