ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Business trends

Tata Consultancy, Infosys likely to post modest second-quarter revenue growth

Concerns over global economy, trade war cloud IT outsourcing outlook

MUMBAI (NewsRise) -- Tata Consultancy Services, Infosys, and Wipro are set to report modest growth in the July-September quarter, as weak investments in financial services business and growing macro-economic uncertainties cloud the demand outlook for top Indian outsourcing companies.

While large deal wins on the back of increasing adoption of new digital technologies will drive the industry's revenue growth, a stronger dollar and slowing technology spending in the financial services industry, the largest revenue-generating sector, is a cause for concern, analysts said.

Citigroup expects the overall sequential revenue growth in constant currency terms for large Indian IT companies to be in the range of 1.4% to 6.7%, "slightly slower than usual seasonality would suggest." The brokerage cites a recent survey among chief information officers across the U.S., Europe, Middle East, and Africa that showed a decelerating pace of growth of technology budgets amid an uncertain macro-economic environment.

An escalating trade war between the U.S. and China and Britain's likely exit from the European Union without a deal have triggered fears of the global economy slipping into the slow growth lane.

Further, the margins of Indian outsourcing companies have been contracting amid rising investments in digital technologies and hiring in local markets.

To be sure, software exporters' margins are likely to rebound sequentially in the second quarter thanks to a weak rupee, as well as absence of visa costs and wage hikes as in the previous three months. An average 1.1% fall in the Indian rupee against the dollar in the last quarter turns Indian outsourcing companies more competitive and expands the local value of their revenue earned in dollars.

India's largest outsourcing company Tata Consultancy Services, or TCS, is set to kick-start the sector's July-September earnings on Thursday. The Mumbai-based company is likely to see its net profit rise by 4.5% to 82.6 billion rupees ($1.2 billion) in the quarter, on a 6.8% rise in revenue to 393.50 billion rupees, according to a Refinitiv poll.

TCS is likely to report a "steady" quarter, though "weaker than what seasonal trends would suggest," Citigroup said. The company had in July said it is focused on reporting double-digit increase in revenue in the fiscal year 2020.

Second-ranked Infosys is set to report its results on Friday. The company is likely to post a 2.4% decline in net profit to 40.1 billion rupees, according to the poll. Its revenue could increase almost 12% to 229.93 billion rupees in the quarter, the estimates show.

The New York- and Mumbai-listed company is expected to raise its outlook for revenue growth in constant currency terms to 9% to 10.5%, from the 8.5%-10.5% it previously forecast. The strong outlook is driven by the expansion in large deals and acquisition of a majority stake in the mortgage services arm of ABN Amro earlier this year.

Third-ranked HCL Technologies, backed by billionaire Shiv Nadar, is likely to see a marginal improvement in net profit to 25.5 billion rupees, while revenue may jump more than 18% to 175.4 billion rupees, the Refinitiv poll showed.

HCL Technologies, which is set to report its second-quarter results on Oct. 23, is expected to retain its growth outlook of a 14% to 16% increase in revenue for this fiscal year. The company has been growing faster than some of its larger rivals thanks to the string of acquisitions and partnerships it struck in the past two years to offset the weakness in its core information technology business.

Fourth-largest Wipro is likely to see a 5.5% decline in net profit to 22.7 billion rupees, while its revenue may grow more than 2.2% to 148.6 billion rupees, the Refinitiv poll showed. Wipro's profit is likely to be hurt by the impact of two months of wage increase offered starting in August.

Analysts expect Wipro, which has been lagging behind rivals, to predict no growth or at best a 2% increase in revenue for the third quarter. Wipro has been contending with persistent challenges in executing orders as well as retaining market share in its traditional software services in the face of intense competition.

Shares of TCS lost 1.6% in Mumbai trading on Friday, while that of Infosys closed down 0.7%. Wipro shares gained 0.2%, while HCL lost 2.2%. The benchmark S&P BSE Sensex rose 1.7%.

--Dhanya Ann Thoppil

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media