IT firms stare at 'soft revenue' growth in Q2: Analysts

The top Indian IT companies are expected to register a "soft" revenue growth during July- September quarter on account of weakness in verticals like banking and financial services (BFS) and retail, according to market analysts.

However, favourable cross-currency movement is expected to provide some relief, boosting revenue growth for the players like Tata Consultancy Services, Infosys and Wipro, they said.

TCS will kick-off the second quarter earnings season on October 12, followed by Wipro on October 17 and Infosys on October 24.

The market will be keenly watching out for cues from Infosys management, especially on the operational metrics, given that this would be the first quarter of reporting of financials after Nandan Nilekani took over as the Chairman of the company in August this year.

Kotak Institutional Securities, in its report, stated that there would be no seasonal spike and second quarter of FY2018 "will be soft for a typically strong quarter, mainly on account of soft BFS and retail verticals".

"Currency will provide some relief, thanks to a weak USD vis-a-vis major currencies, including GBP and EUR. Expect cross-currency tailwinds of 80-160 basis points," it added.

Kotak forecast that the banking vertical has been weak for many companies and that structural challenges in retail will hamper growth.

As a result, the organic constant currency revenue growth for Tier-I companies will be weak in the range of 0.9-2.3 per cent quarter-on-quarter.

A Reliance Securities report pointed that the IT sector continues to face disruptive trends in terms of social media, mobility, analytics and cloud, "leading to cannibalisation of revenue, apart from pricing pressure in commoditised services, and automation".

IT industry body Nasscom has projected a growth rate of 7-8 per cent in IT-BPO exports for the ongoing fiscal.

"We do not expect the industry to surpass this growth target and believe high single digit growth is realistic in the near-term," Reliance Securities said.

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