Strong Re may hit IT firms' earnings
Analysts are even predicting a moderate growth for IT majors mainly on the back of steep rupee appreciation.
By TNN |
MUMBAI: A strong Indian currency last quarter is almost sure to shave off some of information technology majors’ profits when they announce their October-December numbers in a couple of days. Analysts are even predicting a moderate growth for IT majors mainly on the back of steep rupee appreciation and seasonal factors. The IT results season kick-starts on Thursday, with sector bellwether Infosys off the block early in the day.
“Rupee appreciation during the quarter, a high base after the last two quarters of high growth and slightly fewer working days seasonally are likely to moderate sequential growth somewhat for the sector in the December quarter,’’ Morgan Stanley analysts Anantha Narayan and Ashish Jain said in a report.
However, despite the hurdles, the demand environment remains robust for the sector, said the Morgan Stanley report on expectations for the latest quarter for software industry.
The sudden appreciation in the rupee in the last few days could result in high translation losses, which would get reflected in the other income of the companies.
“Given the sharp appreciation of the rupee in the last few days of December, it is quite possible that some companies will report a negative other income line, which could mute the net income line somewhat,’’ Narayan and Jain said. The appreciation in the rupee is significant as nearly 60% of India’s IT revenues is earned in dollars from the US.
According to brokerage firm Karvy, IT major Infosys, which would kick-start the earnings season on January 11, is expected to report slightly subdued revenue growth in the December quarter.
“We expect Infosys to experience translation loss to the tune of Rs 23 crore as a result the other income to be lower over the previous quarter , besides expecting the effective tax rate to see a modest slip,’’ Karvy Stock Broking analyst Ravi R said in a report . IT major Tata Consultancy Services is expected to stand out with significant margin expansion with the management expecting to maintain fiscal 2007 margins at 25.6%.
“Rupee appreciation during the quarter, a high base after the last two quarters of high growth and slightly fewer working days seasonally are likely to moderate sequential growth somewhat for the sector in the December quarter,’’ Morgan Stanley analysts Anantha Narayan and Ashish Jain said in a report.
However, despite the hurdles, the demand environment remains robust for the sector, said the Morgan Stanley report on expectations for the latest quarter for software industry.
The sudden appreciation in the rupee in the last few days could result in high translation losses, which would get reflected in the other income of the companies.
“Given the sharp appreciation of the rupee in the last few days of December, it is quite possible that some companies will report a negative other income line, which could mute the net income line somewhat,’’ Narayan and Jain said. The appreciation in the rupee is significant as nearly 60% of India’s IT revenues is earned in dollars from the US.
According to brokerage firm Karvy, IT major Infosys, which would kick-start the earnings season on January 11, is expected to report slightly subdued revenue growth in the December quarter.
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“We expect Infosys to experience translation loss to the tune of Rs 23 crore as a result the other income to be lower over the previous quarter , besides expecting the effective tax rate to see a modest slip,’’ Karvy Stock Broking analyst Ravi R said in a report . IT major Tata Consultancy Services is expected to stand out with significant margin expansion with the management expecting to maintain fiscal 2007 margins at 25.6%.
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