Hit by a volatile currency and a slowdown in key markets including the US and Europe, top software services exporters in India are expected to report disappointing earnings in the January-March quarter.
IT companies will kick off the results season with Tata Consultancy Services (TCS) set to announce its January-March earnings on April 16.
The fourth quarter is seasonally weak, as clients firm up budgets in the first couple of months of the year and spending picks up over a period. But quarterly growth is likely to be the weakest this time since 2010 due to currency headwinds and slowdown in several sectors, analysts said.
"US purchasing managers index weakened over the past four months, which could impact near-term performance of IT stocks and overall IT demand as PMI is a leading indicator for both," Nomura analysts Ashwin Mehta and Pinku Pappan said. Financial performance at several US industries such as banking and financial services, insurance, consumer and chemicals worsened, they added.
The rupee held steady during January-March, but appreciated against the pound and the euro. The US Dollar on the other hand appreciated against a basket of currencies, including the pound, euro and Australian dollar.
{{/usCountry}}The rupee held steady during January-March, but appreciated against the pound and the euro. The US Dollar on the other hand appreciated against a basket of currencies, including the pound, euro and Australian dollar.
{{/usCountry}}TCS, India's largest software services exporter, had last month warned of a muted quarter, saying its fourth-quarter revenue growth was likely to be similar to the year-ago period, and there will be a 2% negative impact on dollar revenue due to currency volatility.
"Technology companies would likely report low US dollar revenue growth in the quarter (between (-)3.4% and 0.5% quarter-on-quarter). Margins would also be impacted by 30-80 basis points due to exchange rate movements," said Sagar Rastogi and Utsav Mehta of Ambit Capital.
There are also client-specific issues. Mindtree, for instance, had issued a warning, stating that its organic revenue growth during January-March would marginally fall due to delay in start of projects, and cross-currency impacts.