IT outlook still in doldrums amid macro cues

Post soft Q3FY17, the aggregate performance of the Indian IT companies is expected to remain subdued in Q4FY17, due to seasonality issues, weakness in client spending, delay in decision-making process because of ongoing H1-B visa issue and negative impact of rupee appreciation against US dollar. 

On the margin front, we expect that OPM of major IT companies in Q4FY17 will be under pressure due to seasonality, as fourth quarter is a traditionally weak quarter and there has been a sharp appreciation in the rupee.

When major IT companies are lined up, to post their last quarter of financial year 2016-17, what should you look for, in this quarter:

Actions to ease risk arising from the possible rise in minimum wages of H1-B visa workers.

Comment on CY2017 annual IT budgets, budgeting cycle for various verticals and outlook trend on the same.

Comment on margin direction and pricing outlook.

Company’s strategy to allocate capital in coming years (dividend and buyback). Moreover, major Indian IT players such as TCS, HCL Tech and Wipro have already declared share buyback plans.

Furthermore, we expect performance of the major IT players is likely to be adversely impacted by rupee appreciation against US dollar, deceleration in client spending, account specific issues and a seasonally weak quarter. 

Additionally, the newly elected US President’s protectionist measures and narrowing immigration rules, is expected to act as a speed breaker on the path of growth prospects of IT companies in the near to medium term.

The IT major Infosys will announce its Q4FY17 results on April 13, 2017, and other companies such as Persistent Systems and Wipro will announce their quarterly results on April 25, 2017.