The IT industry is expected to report decent first-quarter earnings growth. Tata Consultancy Services (TCS) is the first to report numbers later today. CNBC-TV18 spoke to Girish Pai, head of research at Nirmal Bang Institutional Equities, about the earnings expectations for the tech sector.
On TCS, he said, "TCS is expected to deliver a 3 percent constant currency growth quarter-on-quarter in the first quarter and with cross-currency headwinds, the US dollar growth will be around 2.5 percent."
"The key thing to watch out for TCS would be margins and what is the total contract value that the company delivers. The EBIT margin is expected to dip below 24 percent in Q1," said Pai on Tuesday.
“The TCS commentary over the last many years, they have said that 26-28 percent is aspirational margin band but that is dependent on how the INR moves. According to them, INR depreciation is an intrinsic part of the business model that Indian IT services firms have been used to."
Pai is cautious on FY21 growth for the IT sector. “In FY21 the industry is not going to grow at all because the US will see a soft landing leading to a situation of zero percent growth,” he said in an interview with CNBC-TV18.
"The house has been cautious on the sector with a sell across the board except for a couple of companies. We have a 12-month target for TCS at Rs 1600. However, in the immediate term unless results are negative that is if they disappoint on both growth and margins, the stock may not react downwards in a material way.”