Tata Consultancy Services (TCS) will kick off the earnings season on Thursday where it is forecast to report a revenue growth of 1.3-1.5 per cent for the quarter ended June 30, 2024.
The key focus will, however, be on the management outlook for this fiscal and whether they are witnessing any signs of revival in the industry.
India’s information technology (IT) sector has been hit by poor discretionary spending by enterprises on account of elevated interest rates.
However, optimism is building that the difficult times are over and one could witness a gradual improvement in the months ahead.
The US Federal Reserve is expected to start cutting rates by September, though the easing cycle could initially be a shallow one.
Brokerage Prabhudas Lilladher expects TCS to report revenues of $7.44 billion during the first quarter of this fiscal, which represents a year-on-year growth of 3 per cent and 1.1 per cent in sequential terms.
In rupee terms, its topline is expected to come at ₹61,240 crore, a 1.4 per cent rise over the January-March 2024 period and 4.6 per cent as compared to the corresponding quarter in the previous fiscal.
However, its margins are expected to contract by 110 basis points to 24.9 per cent, sequentially, largely on account of wage hikes.
Its net profit is forecast to come at ₹12,310 crore compared with ₹11,120 crore in the same period of last year, a rise of 10.7 per cent.
``Although some macro indicators are hinting towards recovery, the deal conversion rate or deal closure activities continue at earlier pace with no meaningful change in the pace of execution,’’ its analysts said in a note.
The brokerage added that the anticipated recovery in operating performance for Tier-1 companies in the first quarter has led to marginal re-rating across the board.
``However, we would wait for a more consistent and constructive recovery in the overall demand trend,’’ it observed.
A report from BNP Paribas citing its global strategists said that the underlying narrative of resilient growth, increasing earnings, benign inflation and modest rate cuts remain in play.
Moreover, the cumulative number of rate cuts priced to the end of 2025 should rise, which should bode well for the IT Services sector’s outlook.
BNP analysts picked up Infosys as their top pick. ``We prefer to play the demand recovery cycle with Infosys, where expectations are modest and valuations arereasonable.”