Strong quarterly revenue forecast for IT firms

Last Updated: Jul 09, 2011, 16:05 PM IST

Mumbai: India`s top three software services exporters are expected to report strong quarterly revenue growth with demand remaining healthy despite concerns about the global economy.

Information technology spending this year will grow faster than previously forecast, according to the research firm Gartner, which bodes well for top Indian exporters Tata Consultancy Services, Infosys and Wipro.

Gartner forecast the global IT market will expand 7.1 percent this year, up from its previous projection of 5.6 percent growth.

"Infosys` earnings should be better than they guided and their outlook may improve further," said KK Mital, head of portfolio management at Globe Capital. "An increase in IT spending is expected this year and that should provide some comfort."

Infosys will set the tone for the USD 60 billion outsourcing sector when it kicks off the earnings parade on Tuesday. The focus from investors will be on any change in the company`s revenue and profit guidance for the year to March 2012.

The United States is the largest market for Indian technology firms, contributing more than half their revenue.

Investors will watch for management comments on hiring, a key barometer for demand at the companies that manage computer networks and maintain IT operations for several Fortune 500 companies.

Focus will also be on the outsourcing demand and pricing outlook as Indian firms battle with global rivals such as IBM, Accenture and Hewlett-Packard for large contracts.

Growing competition has pushed up wage costs for Indian companies with annual salaries rising by 10-15 percent for most players in the sector, denting their profit margins.

Nasdaq-listed Infosys and Tata Consultancy will report a decline of 241 basis points and 205 basis points respectively in June-quarter operating margins compared with the previous quarter, largely due to wage hikes, Standard Chartered analysts wrote in a report on July 4.

Tata Consultancy and Infosys are expected to see profit growth of 16 percent to 24 percent respectively for their fiscal first quarter, according to a Reuters poll of analysts.

Third-ranked Wipro could post a marginal fall in net profit after a recent management restructuring triggered caution among its clients, analysts said.

Wipro reorganized its IT outsourcing business in February, three weeks after it surprised markets by removing the joint chiefs of the business.

Its new chief executive, TK Kurien, said in February that the company expects to see a positive impact from the restructuring after three quarters.

Shares in Infosys, which is valued at about USD 38 billion, have lost 13 percent this year and Wipro shares have fallen 11.8 percent. Tata Consultancy shares have gained 2.6 percent versus a 9.4 percent fall in the sector index and a 6.6 percent fall in the wider index.

Following are June quarter forecasts based on a Reuters poll of 10 brokerages.

Bureau Report

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