Top IT stocks fell sharply on Wednesday after touching record intra-day levels a day earlier. Citi Research India, in a report, said it was toning down optimism over the sector’s future performance, apart from downgrading Infosys ratings from buy to neutral, Tech Mahindra from neutral to sell, and Mindtree from buy to sell, a move which left investors wary of the sector. These stocks may exhibit greater volatility in coming weeks, depending on the quarterly performance of the companies.
However, despite the scepticism, top five IT players are expected to report robust sequential growth in revenue and net profit for the September 2014 quarter because of better demand traction in the US and a reviving European market for IT outsourcing. A lack of sharp appreciation in the rupee against major currencies compared with the quarter-ago levels, too, augurs well.
The sample of TCS, Infosys, Wipro and Tech Mahindra is expected to report a growth of 5.7% in sales and 3% in net profit sequentially. It’s based on average of estimates reported by eight brokerages, including Barclays Research India, Citi Research India, Edelweiss Securities, Kotak Institutional Equities, Motilal Oswal Securities, MSFL, Anand Rathi Research and Religare Institutional Research, and internal estimates of the ET Intelligence Group.
Compare this with a lacklustre 0.1% growth in revenue and 1.9% drop in profit sequentially for the June 2014 quarter. TCS will stand out due to expected higher organic growth and the benefit from integration with Mitsubishi joint venture.