Stronger rupee to hurt Indian IT companies

India's top IT services  exporters are expected to witness a slight dip in sales and revenue growth in the December 2012 quarter on a sequential basis due to seasonal weakness in business volumes and the possibility of sustained sluggishness in the performance of select players.

A relatively stronger rupee will also have a marginal impact on the numbers when companies report their results this quarter, starting with Infosys on January 11. 
According to the estimates of ET Intelligence Group, aggregate revenues of TCS, Infosys,Wipro and HCL Technologies will increase 1.6% sequentially to Rs 40,562 crore in the December quarter, while net profit too will grow by a similar margin to Rs 8,652.4 crore. Revenues and profits of the four IT majors had increased at a faster rate of 3% and 6%, respectively, during the September 2012 quarter. One of the major reasons for the slower growth in the December quarter is lower volumes on account of holidays and seasonal weakness in demand as clients in the West decide onIT budgets for the New Year. 

The rupee-dollar movement may also impact growth marginally. The rupee appreciated by around 2% against the dollar in the December 2012 quarter compared with the previous quarter. A stronger home currency adversely impacts revenue of exporters. Revenue growth for the four companies in dollar terms is expected to be between 1.5% and 3.5% for the December quarter on a sequential basis. 

Wipro is likely to report a 1.5% growth in revenue at $1,564 million, just enough to meet the lower end of its guidance for the quarter. Revenue of HCL Technologies is likely to increase at a faster rate of 3.5% to $1,153 million, considering its ability to bag large multi-year deals. 

For TCS, growth is expected to be moderate in the December quarter. During a recent analyst conference, the company is reported to have projected a weak operating margin for the quarter. The company is likely to report a strong order pipeline and sustained growth across verticals. With renewed focus on products and platform-based solutions, Infosys should give a positive outlook. 

The company has been lagging some of its peers for the past few quarters in terms of revenue and profit growth. However, the possibility of an upward revision in the guidance for FY13 looks remote.