Earnings season for the second quarter kickstarts Thursday with IT services giant Tata Consultancy Services (TCS) reporting its numbers. For TCS, growth is likely to be lower than last year and that could be the trend for the entire IT sector or at least most of the companies. Analysts expect revenue growth of 1.8-1.9 percent. In constant currency terms, it should be a growth of 2.5 percent, lower than the 3.7 percent in the September quarter last year.
The key reason for expectations being moderate this time around is the commentary in banking, financial services and insurance (BFSI) seems to have turned incrementally worse. Also, there is the ongoing weakness in manufacturing as well as in the retail segment, so on the whole growth could be a bit muted.
Margins, on the other hand, will expand on a sequential basis because in the previous quarter, there were wage hikes as well as visa costs, which are absent this time around but the companies will have to contend with rupee depreciation.
The profit growth will be muted despite the margin expansion because other income will be lower on account of the buyback completion as well as dividend income.
The question is whether the company still ends with a double-digit growth for FY20. In TCS' Q1 conference call CEO Rajesh Gopinathan said that a lot will depend on Q2. If Q2 is typically strong then FY20 double-digit growth should hold. However, going by the current estimates, it is quite likely that the company may not see a double digit growth for the full year.