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HindustanTimes Sat,19 Apr 2014

Weak rupee is good news for Indian IT sector

Manu P Toms, Hindustan Times  Mumbai, October 11, 2013
First Published: 01:03 IST(11/10/2013) | Last Updated: 01:47 IST(11/10/2013)

A weak rupee is spelling good news for India’s export-oriented information technology (IT) sector and its effects are likely to show up in  the second-quarter results season that kicks off with Infosys on Friday.

Besides, a strong deal pipeline and receding concerns about the US immigration bill are also expected to boost tech firms’ earnings.

In fact, the BSE IT index has been outperforming the Sensex for the past few days. The index has gained 2.8% against a 1.9% rise in the Sensex in the last one week. Ahead of results, Infosys’ stock surged 3.5% this week while its bigger rival Tata Consultancy Services saw its stock hitting an all-time high in intra-day trade on Tuesday.

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And in what could be a precursor, Nasdaq-listed iGate on Thursday reported a 8% revenue growth year-on-year to $293 million (`1,794 crore) and a 13% rise in net profit to $32 million (`196 crore).

Understandably, investors and analysts are bullish on the sector.

“We expect a healthy Q2 for the Indian IT sector with 2.5%-5% quarter-on-quarter revenue growth in dollar terms from large players and TCS leading the pack,” said Rumit Dugar, vice-president, Religare Capital. “The sharp fall in the rupee will aid margins though wage hikes will limit gains for Infosys and Wipro.”

He expects a 60-250 basis-point (100 basis points is 1 percentage point) rise in firms’ operating margins due to the rupee’s fall in the second quarter.

“We expect significant rupee depreciation to dominate technology companies’ financial performance for the quarter. The aggregate operating margin is likely to expand 200-250 basis points quarter-on-quarter for top companies,” said Ashish Chopra, analyst with broking firm Motilal Oswal.

Major IT companies including TCS, Infosys, Wipro and HCL struck key deals in the second quarter.

Among other companies, Tech Mahindra and Persistent Systems are expected to post sound results.

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