''We are yet bullish on IT, given USD revenue growth visibility for these companies, a stable currency and the sector's demonstrated ability to absorb external shocks, if any. Our top pick- Wipro,'' according to Anand Rathi Institutional Research.
''With the widely-expected increased tech spending in the US and in Europe, 1QFY15 USD revenue of the companies we cover grew 3.5% qoq, the highest in the past six quarters. Of the companies, TCS, HCLTech, TechM and Mindtree reported more-than-expected growth; Infosys, Wipro and KPIT registered lower growth rates, with the first two attempting a turnaround and the latter faced with project delays,'' it added.
''Growth bounces back in the US in the quarter ending Mar'14, the US economy shrank 2.1%, triggering worries about its strength. In the June-ending quarter, however, it surprised positively with over 4% growth. With industry aggregate growth rates for the US region at 3.9% qoq, 11.1% yoy, the benefits have trickled down to the IT sector. Wipro and HCLT were the only ones among large caps which saw slower growth in the US. This US growth, we believe, was the clearest positive for the IT sector in 1QFY15.''
''Margin erosion anticipated, but TechM surprised us negatively of the companies we cover, EBIT margins eroded 170ps due to headwinds such as wage hikes, currency appreciation, visa expenses and, for some companies, change in depreciation and amortisation norms because of the new companies' Act. However, TechM surprised us negatively with a 315-bp margin decline on large deal ramp-ups.''
''Rising attrition a serious concern attrition continued to inch up for the sector except with TCS and Mindtree which maintained it at 11-14%. For the others, with attrition levels running at 18-24% it is becoming increasingly difficult to manage fault-free delivery. While this quarter is supposed to be seasonally bad in attrition, the trend in the sector continues to be negative,'' the broking firm added.
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