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TCS, Infosys likely to post strong quarterly revenue on surging outsourcing deals

Slowing global growth remains a concern for Indian IT firms

TCS chief executive Rajesh Gopinathan: Outsourcing deals inked over the last two quarters are giving Indian IT companies a boost.   © Reuters

MUMBAI (NewsRise) -- Top Indian outsourcing companies Tata Consultancy Services, Infosys, and HCL Technologies are likely to post strong quarterly revenue, aided by the steady inflow of outsourcing deals, even as fears of a global macroeconomic slowdown cast a shadow over this year's outlook.

The industry thrived as outsourcing deals surged over the past year, with India's largest software exporter TCS bagging orders worth billions of dollars since the beginning of 2018. A 6.1% decline in the value of the rupee against the U.S. dollar also helped boost the profits of Indian companies last year.

Still, the trade row between the U.S. and China and fears of Britain exiting the European Union without a trade deal have stirred fears of a global economic slowdown that may force clients to claw back spending on technology, warn analysts.

Growth in the fourth quarter will be led by the expansion of large deals won over the past two quarters, Kotak Institutional Equities said in a report. However, the benefit from the strong deal flow and increasing digital deal sizes will be offset to some extent with slower growth in spending budgets in the fiscal year 2020, it added.

The brokerage expects the revenue growth of IT companies in the current fiscal year that began on April 1 to be broadly similar to that of the last fiscal year.

TCS and second-ranked Infosys are set to kick start the sector's fourth-quarter earnings on Friday.

Mumbai-based TCS is likely to see its net profit jump about 18% to 81.3 billion rupees ($1.2 billion) in the quarter ended March 31, helped by an 18% surge in revenue to 378.63 billion rupees, according to a Refinitiv poll of 44 analysts.

The strong deal wins in the past few quarters has set the company on course for a double-digit expansion in revenue growth in the last fiscal year. However, a slowdown in spending in the banking and financial services business poses a fresh threat to TCS's growth this year, say analysts, as the sector accounts for almost a third of its revenue.

An increase in spending by banking clients could be "patchy now," with an uncertain macroeconomic environment in the U.S., HSBC said in a report.

Second-ranked Infosys is likely to report a 6.8% increase in net profit to 39.40 billion rupees, according to a Refinitiv poll of 43 analysts. Infosys is expected to report a more than 19% gain in revenue to 214.97 billion rupees in the quarter, according to the estimates.

The New York- and Mumbai-listed company is also likely to set its revenue growth in constant currency between 8% and 10% for this year.

"The company has made solid progress in large deal signings and seems to be taking steps in turning around the consulting business through high-profile hires from competition," Kotak Institutional Equities said.

Infosys is barely returning to normalcy after Chief Executive Salil Parekh took charge in February 2018, following a boardroom tussle in 2016 that pushed the company into turbulence for more than a year.

Third-largest HCL Technologies is likely report an almost 15% jump in net income to 25.56 billion rupees and a 21% surge in revenue in the quarter, the poll showed. A strong recovery in the software infrastructure management sector and a string of recent acquisitions are likely to spur HCL's annual revenue growth outlook to 14% to 16% this year, say analysts.

Fourth-ranked Wipro, which is announcing its quarterly earnings on April 16, is likely to see a 23% increase in net profit to 24.68 billion rupees, while revenue may grow more than 10% to about 151.73 billion rupees, the Refinitiv poll of 40 analysts showed.

Shares of TCS and Infosys closed down 2.1% and 0.8% each in Mumbai trading on Wednesday. Wipro shares gained 2.8% and HCL ended 1.8% lower, while the benchmark S&P BSE Sensex lost 0.9%.

--Dhanya Ann Thoppil

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