Q3FY20: Earning expectation of IT Services

The third quarter of a financial year remains seasonally weak for IT companies; however, it also sets the tone for the rest of the calendar year. Due to furloughs (temporary leave of employees, owing to Christmas and the year-end), IT companies are expected to post a muted set of numbers. It also gives direction on how the deal will flow for the year.

Looking at the performance of some of the international companies, such as Accenture, the deal momentum is likely to remain strong for Indian IT companies. In the first quarter of FY20, Accenture reported a growth of 7.4 per cent in its outsourcing business. The company follows October to September as the financial year. The US grew by 9 per cent on a yearly basis.

The Indian companies will be benefited from a sharp depreciation of the US Dollar against other global currencies that will help companies to report better topline growth. The aggregate revenue of the companies will grow anywhere between 0.8 per cent and 1.8 per cent on a quarterly basis. The margin is also expected to improve, owing to the absence of wage hikes and the depreciation in INR.

In terms of companies, large cap names, such as TCS, Infosys, and Wipro, are likely to report a growth of 0.8 per cent, 0.9 per cent, and 1.7 per cent in their topline on a constant currency basis and sequential basis, respectively. Mid cap companies will grow a tad better than the large cap names.

The key thing to watch will be the management commentary on the deal-flow and CY20 outlook, including client IT spending, pricing pressure, and growth in digital services.