Revenue growth of top Indian IT companies is expected to be 'soft' in the December quarter, while mid-tier companies are likely to report better performances, says a report.
According to a report by Kotak Institutional Equities, though there are reasons to be optimistic on demand conditions, the potential changes in US visa rules remain an overhang for the sector.
"We expect muted revenue growth for Tier-I players due to the usual end-of-the-year furloughs and continued softness in banking financial services (BFS) and North America," Kotak Institutional Equities said in a research note.
Meanwhile, mid-tier companies are expected to report higher growth, powered by a ramp-up in deals.
"We see enough reasons to be optimistic on demand and revenue acceleration, though implications of US tax reform and potential changes to visa rules in the US remain an overhang," it added.
Revenue growth for Indian IT companies decelerated in calender year 2017, on account of lacklustre growth in BFS, regulatory issues in US healthcare and challenges in the retail vertical.
Changes in the sourcing strategy of clients and slow progress on digital and sub-optimal participation of Indian IT also affected revenue growth of domestic IT companies.
Going forward, investor focus will be on calender year 2018 IT budgets and demand outlook, especially in case of drag verticals of calender year 2017, pick-up in digital spends, and industrialisation of digital services, the report said.
It further noted that the other areas of investor focus should be implications of US tax reforms and H-1B dependency.
"The imposition of Base Erosion and Anti-abuse Tax (BEAT) on payments made by US companies to its foreign affiliates will impact select Indian IT companies," it said, adding that "investors may also focus on H-1B dependency as one cannot rule out some change in US visa regulations in 2018".
