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Brokerages bet big on tech show

TCS, Infosys, Wipro, HCL Tech and Tech Mahindra are estimated to see a cumulative revenue growth of 2.46% on a trailing quarter basis
The brokerage estimated that for the third quarter, Infosys and TCS will lead the pack with 5-6 per cent sequential growth, followed by HCL Tech and Wipro (3-4 per cent), and Tech Mahindra (1.8 per cent) in dollar terms.
The brokerage estimated that for the third quarter, Infosys and TCS will lead the pack with 5-6 per cent sequential growth, followed by HCL Tech and Wipro (3-4 per cent), and Tech Mahindra (1.8 per cent) in dollar terms.
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Our Special Correspondent   |   Mumbai   |   Published 08.01.21, 12:57 AM

Tata Consultancy Services (TCS) will kick-start the third-quarter earnings season on Friday amid robust estimates forecast by brokerages on the sector’s revenue and profit growth.

Analysts also expect these companies to give a positive commentary on the road ahead, citing the continuation of strong deal wins and clients adopting cloud and other digital services.

The quarter is likely to see not only improved performance in various geographies but also growth across verticals with even beaten-down sectors showing a pick-up.

While IT stocks have rallied, it is felt that there is still some steam left with companies forecasting even better growth for the next fiscal.

Despite being a seasonally weak period, it is estimated that the five frontline firms — TCS, Infosys, Wipro, HCL Tech and Tech Mahindra — will see a cumulative revenue growth of 2.46 per cent on a trailing quarter basis, while the cumulative net profit is expected to rise around 6 per cent sequentially.

Analysts at Edelweiss said in a report that the October-December 2020 period will be the best third quarter in a decade for the sector because of the large order books, marked revenue acceleration and margin expansion.

“Our multiple analyses suggest a structural demand uptick driving industry-wide acceleration in revenue growth from 9-10 per cent pre-pandemic to 12-13 per cent in 2021-22 and 14-16 per cent thereafter through 2026-27,” it  added.

The brokerage estimated that for the third quarter, Infosys and TCS will lead the pack with 5-6 per cent sequential growth, followed by HCL Tech and Wipro (3-4 per cent), and Tech Mahindra (1.8 per cent) in dollar terms.

It also expects Infosys to again revise the revenue guidance. The Bangalore-based company had forecast that its revenues will grow 2-3 per cent this fiscal compared with its earlier estimate of 0-2 per cent growth. While Infosys is expected to post a net profit of Rs 5,178 crore, the bottomline of its larger peer TCS is expected to be at around Rs 8,784 crore.

However, the quarter could be marked by a sequential drop in margins because of wage hikes. A Motilal Oswal report forecast that operating margins of TCS could slip by 60 basis points over the preceding three months to 25.6 per cent. Infosys, however, is likely to see its margins rising by 40 basis points to 25.7 per cent.



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