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Tata Consultancy, Infosys set to post strong earnings amid weaker rupee, string of deals

Trade wars, Brexit may weigh on outsourcing demand this year

Infosys is expected to report a more than 19% gain in revenue to 212.25 billion rupees in the quarter, according to the estimates.   © Reuters

MUMBAI (NewsRise) -- Tata Consultancy Services, Infosys, and Wipro, India's top software exporters, are set to report strong third-quarter profits, aided by the sharp fall in the Indian rupee and a quicker pace of deal wins.

The industry has been growing at a healthy pace over the past few quarters thanks to the surging investments in new internet technologies, even as an escalating trade row between the U.S. and China and fears of Britain exiting from the European Union without a trade deal stirred fears of a slowdown. A 9.2% fall in the value of the rupee in 2018, its biggest annual drop in five years, also helped boost the profitability of India's IT companies.

The rupee fell an average 11% against the dollar in October-December. A weak rupee turns Indian outsourcing companies more competitive and inflates the local value of their revenue earned in dollars.

However, fears of a slowdown in two of the largest outsourcing markets -- the U.S. and Europe -- have cast a shadow over clients' investment in technology this year, say analysts.

"Global events, such as Brexit and trade wars, have impacted the confidence on demand recovery in 2019," HSBC said in a report. Still, it expects the demand environment to improve as banks increasingly look to upgrade their core systems amid a greater focus on front-end transformation work. Tata Consultancy Services, India's biggest software exporter, is set to kick start the sector's October-December earnings on Thursday.

The Mumbai-based company is likely to see its net profit jump more than 26% to 82.3 billion rupees ($1.2 billion) in the quarter, helped by a 23% surge in revenue to 378.83 billion rupees, according to a Refinitiv poll of 40 analysts.

TCS has been outperforming analysts' expectations in recent quarters, driven by outsourcing orders worth billions of dollars it has bagged since the beginning of last year. The strong performance prompted the company to predict a double-digit increase in revenue growth for this fiscal year.

Second-ranked Infosys will report third-quarter results on Friday. The company is likely to report an almost 12% increase in net profit to 41.28 billion rupees, according to a Refinitiv poll of 42 analysts. Infosys is expected to report a more than 19% gain in revenue to 212.25 billion rupees in the quarter, according to the estimates.

The New York- and Mumbai-listed company is also likely to raise its outlook for revenue growth in constant currency to 7.5%-8.5% for this year on the back of deals worth more than $1 billion between April and September, say analysts. It had previously forecast revenue growth of 6% to 8% for this fiscal year.

Nomura also flags the possibility of Infosys announcing a buyback of shares worth $1.6 billion. Infosys had last April identified $2 billion to be paid to shareholders, of which $400 million was paid as special divided.

Third-largest HCL Technologies will likely report a more than 16% increase in its net income to 25.53 billion rupees and a 21% gain in revenue in the quarter, the poll showed. HCL has been consistently outperforming rival Wipro to take the third spot in rankings among Indian software companies. Wipro, which is announcing its third-quarter earnings on Jan. 18, has been grappling with insolvencies at clients and a slowing U.S. business as it contended with a slowdown in the energy and healthcare businesses in the region.

It is likely to see a 2.7% increase in net profit to 23.15 billion rupees, while revenue may grow more than 11% to about 152 billion rupees, the Refinitiv poll of 37 analysts showed. The Bengaluru-based software company's growth in the third quarter was aided by the acquisition of U.S.-based Alight Solutions' India operations last year.

Nomura expects Wipro to forecast no growth or at best a 2% increase in dollar revenue for January-March.

Shares of TCS and Infosys closed down 0.2% each in Mumbai trading. Wipro shares gained 0.5% and HCL ended 0.6% higher, while the benchmark S&P BSE Sensex added 0.4%.

--Dhanya Ann Thoppil

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