JOIN USUncertainty about spending by US and European clients in a weak global economy will likely weigh on the earnings of Indian outsourcers, dampening hopes that demand will pick up in the second half of the year.
India’s $100 billion-a-year information technology and back-office outsourcing industry earns about three-quarters of its revenues from customers in the United States and Europe.
Analysts expect No2 ranked Infosys Ltd., the only top-three vendor to provide a full-year forecast, to pare its revenue growth estimate for the current fiscal year to as low as 5 per cent when it posts quarterly earnings on July 12.
The company in April had forecast 8-10 per cent growth for the fiscal year ending March 2013, already disappointing investors enough to cut 13 per cent of its market value on the day. It has gained about 2 per cent since.
Customers continue to hold back discretionary spending due to the extended euro-zone crisis and the absence of unequivocal data that an economic recovery is under way in the United States, the Indian providers’ biggest market.
“Hopes of a recovery in the second half are just that, hopes,” said BNP Paribas Mutual Fund Research Head Apurva Shah.
The sluggish global economy is prompting clients to demand more for every dollar spent. This adds to the pressure on billing rates on a commoditised set of services that Indian firms, competing with Accenture and IBM, rely on for the bulk of their revenues.
“The depressed situation in the west appears to continue to be of concern, but the hope is that they will recover slowly,” Tata Consultancy Services Chairman Ratan Tata said at the company’s annual shareholder meeting on June 29.
Shares of Infosys, which has a market value of about $25 billion, are down about 11.5 per cent this year, while those of top-ranked TCS are up about 8.7 per cent.
For the June quarter, analysts expect little or no sequential dollar-term sales growth for Infosys. The company may say sales grew 0.5 per cent, Deutsche Bank Analyst Aniruddha Bhosale said in a note. Bhosale, who advises clients pick TCS, expects it to report sequential growth of 2.6 per cent.
Infosys is seen posting a profit of Rs 23 billion, compared with Rs 17.2 billion a year ago, while TCS is seen coming in at Rs 29.7 billion, 23.3 per cent more than the year-earlier period.
The companies are expected to benefit from an 8.5 per cent fall in the rupee during the quarter. However, analysts see some negative cross-currency effect due to the move in the euro and British pound versus the US dollar.