IT cos likely to post steady earnings in Jan-Mar: Analysts

Rise in discretionary spending, US economy stabilising may helo Indian IT companes post steady growth

A slight improvement in discretionary spending and the US economy getting stablilised may help the Indian IT companies post steady growth in earnings for the January-March quarter, analysts said.
     
The earnings season will start with Infosys announcing its fourth quarter results on April 12, followed by HCL Technologies on April 17.
     
TCS, Wipro and other leading IT firms are yet to disclose the dates for their financial results.
     

"We expect companies under our coverage to report a sequential revenue growth of about 2.6 per cent, driven by volumes," Kotak Securities Head (Fundamental Research) Dipen Shah said in a preview report on the IT sector results.

 
While the economies of the US and European Union may take long to improve, the stimulus measures taken by them have eased concerns of defaults/bankruptcies and helped them stabilise, he said.
     
"There has likely been some improvement in velocity of decision making and discretionary budgets are also getting released...This may prevent demand from falling in the foreseeable future," Shah said.
     
Traditionally, January-March is a soft quarter for IT companies as budgets get closed and decisions are taken between February and March on the kind of discretionary, operational and capital spending.
     
Barclays, in a report, cited similar reasons for its optimism in the sector.

     
"Early closure of IT budgets, slight improvement in discretionary spending and relatively better US GDP growth are all pointing to an improving revenue trend for Indian IT services companies in FY14 and numbers for the March quarter should reflect steady growth," it said.

Besides, Gartner Research Director Arup Roy said Europe could spring a few surprises.
  
 "The surprise element could be the European region, that might show spurt in growth as companies in the European region look at off-shoring as a means to cut down costs to tide over the adverse economic scenario there," he said.
    

The analysts were of the view that the annual guidance from Infosys will be of interest and added that if the company decides to give guidance, it's likely to be muted.
    
"If it (Infosys) gives annual guidance for FY14, we expect the same to be muted. The management has been consistent in cautioning that, uncertainty persists in the developed economies," Shah said.
    
Infosys had stopped providing quarterly guidance last year, citing lack of clarity in business environment.
    
However, analysts remain upbeat on the sector's growth during the new fiscal.
    
"Demand for IT offshore services will continue to be strong due to the need for operational efficiency and cost rationalisation and regulatory compliance and risk management at the clients' end," Angel Broking said in its report.