Q2 results of big IT companies like TCS, Infosys, Cognizant show strong rebound in US market

The aggregate performance of the top five IT companies in the quarter to September reflects a strong rebound in the US market and a hope of recovery in Europe. This is in sharp contrast to the sombre outlook at the beginning of 2013, when delayed revival in the Western markets that account for four-fifths of the revenues of Indian IT firms, had cast doubts over growth in the sector's revenues. But even as the upbeat performance is expected to support valuations of IT stocks, a spike from these levels is unlikely given the seasonal weakness in the second half of the fiscal.

Tata Consulting Services (TCS), Cognizant, Infosys, Wipro and HCL Technologies reported a 4.7% increase in the aggregate dollar-denominated revenue during the July to September quarter, compared with 3.7% in the year-ago period as well as the previous quarter. This is the highest growth posted by the top-five IT companies over the past nine quarters.

Cognizant led the pack by clocking the highest sequential revenue growth of 6.7% in dollar terms. This was the third consecutive quarter the company posted better growth than its peers. TCS, India's largest IT exporter, delivered a 5.4% growth in revenue, its highest over the past nine quarters.

Based on the trailing 12-month revenue in each of the quarters, Cognizant and TCS reported improvement in their respective shares in total revenue, whereas Infosys' and Wipro's shrank from the year-ago levels. Cognizant's share increased by 110 basis points to 21.1%, while TCS led the sector with 31.2% revenue share, an improvement of 60 basis points over the corresponding quarter of the previous year.

Wipro reported the sharpest drop of 130 basis points in its revenue share at 15.9%. HCL Tech's share remained unchanged at 12.1%. While Infosys reported shrinkage in its share of absolute trailing 12-month revenue, it did show a higher momentum in revenue addition. Based on incremental revenue over the previous year's corresponding quarter, Infosys accounted for 16.6% of the total incremental revenue. This was more than its share of 12.1% a year ago. This shows that the company is getting back on the growth track after reporting sluggishness in the past.

The renewed traction in demand for both routine and long-term projects for these firms is expected to contain the impact of seasonal weakness in the ongoing quarter.