The nearly 3% INR's appreciation versus the USD compared with last quarter close (with consensus concerns of further appreciation possibilities) and indications of Q4 weakness by Infosys/TCS, has set the cat among the pigeons in the IT sector, with the sector underperforming Nifty by 17% over the last month (8% YTD), according to Nomura Financial Advisory and Securities.
''The key questions on which to focus in the Q4 results are will the companies raise hopes of better growth in FY15F, to counter consensus concerns of further INR appreciation; How much leeway do companies have to counter INR appreciation; For every 1% INR appreciation, theoretical EPS impacts range from 1.5% to 2%, on our calculation. The operational levers/reinvestment prioritization companies will focus on to counter this INR impact will decide near-term stock performance, in our view,'' it said.
''We expect tier-1 IT aggregate growth to moderate to 2.3% q-q (vs 2.7% q-q in Q3) given, seasonal weakness, indications of flattish growth at Infosys (owing to weakness in retail and hi-tech, coupled with project ramp-downs) and at TCS (owing to India business declines),'' said Nomura.
''Commentary on demand strength at the start of the year and 1H versus 2H strength would be key to deciding whether FY15F is only a moderately better year compared with FY14F (which is our current expectation). We expect 3% or higher growth at HCL Technologies, Cognizant, Wipro and Tech Mahindra, while Infosys (0.3% q-q)/TCS (2.2% q-q) are likely to lag behind. HCL Technologies could surprise positively versus our expectations, in our view,'' it opined.
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