Income of IT companies will be affected by currency fluctuations

Analysts at Kotak Institutional Equities said, “We anticipate solid 2.5-4.7% sequential revenue growth for the big players for the September 2022 quarter. EBIT (earnings before interest and taxes) margins should remain under pressure as companies supply Tackle-side challenges and high costs.”

The BSE Information and Technology index has fallen nearly 27.3% from its January highs, reflecting investor concerns over the IT services sector. The S&P BSE Sensex is also down around 5.3%.

Analysts at Motilal Oswal Financial Services Limited (MOFSL) forecast a 4.2% sequential growth in constant currency terms for companies under its coverage universe. Growth in EBIT (5.9 per cent sequentially) should be aided by seasonal margin improvement, although the impact could be subdued due to continued supply side pressures, he said.

Another major factor affecting profitability would be global currency volatility. While firms will benefit from a stronger dollar, gains from a weaker euro, pound sterling (GBP), yen and Australian dollar (AUD) are likely to be lower.

“We expect cross-currency headwind of 120-200 basis points in Q2FY23, with GBP, EUR and AUD depreciating 6.2%, 5.4% and 4% respectively against the US dollar,” said analysts at ICICI Securities Ltd. Is.” The rupee has depreciated 3.2% against the dollar in Q2FY23 and appreciated by 2.2-3% against other currencies (GBP, EUR etc), partially offsetting margin pressure, he said.

Analysts at HDFC Securities said that with the GBP and Euro falling around 10% from the previous quarter, fueled by the yen and AUD, currency volatility will adversely impact Q2 performance as well as in Q3.

With a turbulent macro environment and imminent fears, all eyes will be on TCV (total contract value) deal win, and management comments on signs of the impact of the slowdown in the US and other developed markets. Management commentary on hiring and attrition, and pricing and revenue from core verticals will also be looked at carefully.

Analysts at MOFSL said: “We are confident that Infosys and HCL Technologies will maintain revenue growth guidance.”

However, MOFSL expects growth slowdown with increased weakness in 2HFY23 and some stocks are already baking in a physical slowdown in growth. Hiring is also likely to slow down, though attrition rates are expected to peak.

Analysts at ICICI Securities said, “We expect a change in management tone from ‘continued strength in demand’ to focus on ‘ROI (return on investment) and cost optimization by clients’, resulting in normalization of demand.” She goes.”