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Dec earnings of IT cos to hurt from double whammy: Deutsche

According to Deutsche, the cross-currency headwinds faced by tech companies in December were the most severe quarterly movements of the past four years.

The News International Team

A double whammy of seasonal weakness and cross-currency headwinds may have hurt dollar revenues of frontline IT services firms during the December quarter, according to a Deutsche Bank report.

“We expect Infosys  to be affected the least and TCS  the most by the adverse currency movements. Tech Mahindra continues to gain share and we expect it to deliver USD revenue growth of 3.8 percent quarter on quarter, significantly higher than peers at 0.4-1.2 percent Q-o-Q,” Deutsche said, adding that Tech Mahindra  and TCS continue to remain its top picks.

According to Deutsche, the cross-currency headwinds faced by tech companies in December were the most severe quarterly movements of the past four years.

“This is likely to negatively affect the dollar revenue growth rates of the top-tier Indian vendors by 130-220bps,” the report said. However, staying bullish on Tech Mahindra, Deutsche said it expects the tech major to continue to gain share and deliver sector-leading dollar revenue growth of 3.8 percent Q-o-Q (against 2.8 percent [organic]) during the quarter on the back of strong deal wins in both telecom and enterprise businesses.

“Despite the severe cross-currency headwinds, the weak rupee will cause the operating margins of the vendors to remain in a narrow band on a Q-o-Q basis,” the report added.

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