IT STOCKS PREVIEW 👍👍

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TCS India's largest software services provider, will release its July-September quarterly results on October 10, kicking off the Q2 earnings season for the IT sector. With TCS results set to set the tone for the competition, brokers remain cautious amid ongoing issues on the margin front as key US and European markets face weaker headwinds.
Domestic brokerage firm HDFC Securities expects Tier I IT companies to achieve sequential growth in the range of 2.4 percent to 4 percent at constant exchange rates (CC). It added that the severity of the foreign exchange impact was similar to last quarter, ranging from -1.3 percent to -1.8 percent sequentially. Companies providing services in other countries present their earnings in constant exchange rates. It refers to a fixed exchange rate that eliminates fluctuations when calculating the results.

TCS-: We expect CC revenue growth of +4.6% qoq due to strong momentum in digital transformation programs. Expect broad-based growth across all industries. Margins are expected to expand +70bps QoQ as wage increases, USD/INR depreciation, etc. are absorbed. Headwinds are supply side pressures and an increase in travel and facility costs.
Infosys: We expect strong CC revenue growth of +5.3% due to the strong momentum and ramp-up of past transactions. Margins are expected to increase slightly +30bps QoQ given USD/INR depreciation and operational efficiencies, offset by likely lower utilisation, executive pay rises and travel expenses. We expect Infosys to maintain CC revenue growth of 14-16% and EBIT margin guidance of 21-23%.
Wipro: We expect CC IT services revenue growth of +4.0%, in line with the forecast range of 3-5% for large deals; it will include two months of influence from Rizing. Margins are expected to rise modestly (+20 basis points) with headwinds such as pay rises and promotions being offset by growth, load factor improvements and efficiencies. We expect Wipro to forecast Q3 CC growth of +1% to +3% qoq.
HCL Tech: We expect CC sales growth of +4.0%. Growth will be driven by services (IT services & ER&D) while P&P will remain subdued. Margins are expected to increase modestly (+40 basis points) as HCL will spread pay increases over Q2 and Q3 offset by growth and operational efficiencies. We expect HCL to maintain its guidance for FY23 growth (12-14% CC) and margins (18-20%).
Tech Mahindra: We expect subdued CC revenue growth of +2.1% qoq. Expect Telekom to lead the growth. Margins are expected to increase moderately (+30 basis points) as the impact of wage increases (80-100 basis points) will be offset by operational efficiencies.