With stock prices soaring to record highs, investors have turned their attention to the first quarter results of India Inc.
The earnings calendar will kick off on July 12 with the results of Tata Consultancy Services (TCS) and HCL Technologies. Analysts expect a muted performance from the IT sector, though the April-June period is a seasonally strong quarter.
The focus will be on the management commentary on the outlook for this fiscal amid bumps in global economic growth.
However, industries such as automobiles and banks are expected to continue with their strong performance in the first quarter.
The run-up to the results season has not been encouraging for the IT services firms in terms of the guidance given by some of the global giants.
Accenture, which follows a September-August accounting year and recently released its numbers for the third quarter ended May, has forecast revenues for the fourth quarter in the range of $15.75-16.35 billion, an increase of 2-6 per cent, which came below Wall Street estimates.
According to Kotak Institutional Equities, a soft discretionary spending environment combined with the pullback of projects in financial services and telecom will lead to the top IT companies reporting a sequential revenue decline or marginal growth in a seasonally strong quarter. Its analysts added that the margins for the sector will likely decline sequentially because of wage revisions and cost increases.
''June is a seasonally strong quarter for IT companies. However, June 2023 will be an exception, with revenue declining for certain companies (Wipro and Tech Mahindra), flat for TCS and marginally growing for some (HCL Technologies at 1 per cent and Infosys at 1 per cent quarter-on-quarter). We believe revenue growth year-on-year will move to low-single digits to high-single digits.’’
There will be weak discretionary spending across many verticals especially in financial services, telecom and hi-tech. It expects a 15.9 per cent growth in net profits for TCS during the April-June quarter to Rs 10,983 crore while revenues could show a 12.5 per cent rise at Rs 59,356 crore.
Market circles said while IT companies may look attractive from the valuation standpoint, tepid results could limit their upside in a bullish market.
Both the key indices have been breaking records and one of the sectors that has stood out is banking.
A note from Motilal Oswal said while the calendar year 2022 ended with a sharp outperformance of banks over IT, since the beginning of 2023 the former started to underperform mainly due to the US banking crisis, expectations of a moderation in NII (net interest income) growth and margins for Indian banks and weak FII flows.
This resulted in IT recovering over a weak base of 2022 and anticipation of global interest rates nearing the peak.
However, the tide turned against IT in April-June 2023.
Banking stocks revived as the US banking crisis began to recede.
The brokerage said the strong earnings momentum in Indian banks was driven by healthy loan growth, stable margins and asset quality improvements with a sharp revival in PSU banks’ profits.
Observers say that banks are likely to continue their good performance in the first quarter aided by strong loan growth and a lower amount of bad loans that lead to lesser provisions.
On Friday, the BSE Sensex surged 803.14 points or 1.26 per cent to finish at a record closing high of 64718.56.