Markets will be closely watching the announcement of Tata Consultancy Services (TCS) fourth quarter earnings on Thursday, as investors remain keen to assess the impact of strong dollar on the revenues of major IT companies.
A strong dollar is good for Indian IT companies but can have an equally negative impact, affecting their business in countries other than US, as depreciating local currencies put pressure on the revenues from those countries.
TCS, India's largest IT firm, already said that its margins would be down 40 basis points in January-March quarter due to currency fluctuations besides seasonal weakness in demand.
Analysts expect the company's rupee denominated revenue to show no growth for the final quarter of 2014-15. Its dollar denominated revenue is estimated to go down by 200-270 basis points (bps).
The Mumbai-based software firm is expected to have earned revenue of ₹24,498.7 crore in March 2015 quarter compared to ₹24,501.1 crore in the previous quarter, The Economic Times reported, taking into account the average of the estimates by five brokerages and the forecast by the ET Intelligence Group.
Net profit is likely to fall by 0.9% to ₹5,396.4 crore, according to the estimates.
The dollar's rally against its major counterparts is hurting revenues of domestic software services firms in the non-US markets such as Europe, where the demand is already slowing due to a sagging economy.
The impact of depreciation of global currencies against the USD was at 200-250bps on the sequential revenue growth of the top five IT players, viz., TCS, Infosys, Wipro, HCL Tech and Tech Mahindra, IDFC's IT analyst Hitesh Shah told The Times of India.
The US currency gained 9% versus the euro in January-March period compared to same quarter last year due to monetary policy divergence between the US and Europe. Foreign exchange rates are highly impacted by monetary policies of respective central banks.
Revenues from Europe have doubled in the past five years for India's top IT companies, as they diversified their market presence after having been hit severely by the financial crisis in the US in 2008.
Infosys Results More in Focus This Earning Season
Infosys Ltd., India's second largest software services firm, which begins the quarterly earnings season traditionally, postponed the announcement of its results to 24 April, 2015 without citing any reason.
Analysts say that chief executive officer Vishal Sikka is seeking more time to finalise the roadmap needed to restructure into a next-generation service company.
The $8.2 billion IT services company is expected to outline new metrics to ascertain the progress of the revival strategy initiated by the new chief executive after taking charge in August 2014.
Infosys reported a revenue growth of 2.6% in the third quarter ending December 2014, helped by growth in all verticals and new client additions.