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IT cos likely to report robust Q3

Vishwanath Kulkarni

Bangalore , Jan. 8

RIDING high on the outsourcing wave, information technology firms are expected to report a robust growth for the December quarter.

The top tier firms, driven by strong volumes, are expected to post a sequential revenue growth of 7 - 12 per cent for the quarter, analysts said. The lesser number of working days during Q3 due to Christmas and New Year holidays would be offset by a strong volume growth and an upward bias in the pricing regime, they said.

Though no major surprises are expected from the top tier firms, analysts felt these companies would easily surpass their projected guidance for the quarter.

The operating margins for the top tier firms, positively impacted by the rupee depreciation and lower visa costs, are expected to grow sequentially between eight and15 per cent for the quarter.

The key IT stocks have outperformed the market during the December quarter, thereby supporting the positive trends on earnings.

The key IT stocks saw a growth of 10-32 per cent during Q3, while the Sensex rallied by about 9 per cent.

With new ramp-ups in place, TCS and Infosys Technologies should report a stronger volume growth, analysts said. TCS and Infosys may see some revenues flowing from the multi-million-dollar ABN-Amro deal this quarter, which may not have any major impact.

Wipro, which implemented a wage hike for its offshore employees during Q3, may see a flattish growth in margins despite a likely resurgent growth in IT services and a better performance in BPO business.

The mid-sized companies may show a mixed performance, lagging behind the large players, they said. However, MphasiS, Sonata Software and Aztec, among others, may spring some surprises, analysts said.

With indications that offshoring is set to get stronger this year, analysts expect IT companies to fare better in the second half of fiscal 2006 as compared to the first half.

The integration of a series of acquisitions by TCS and Wipro would reflect in the improved performance for the fourth quarter.

Some pointers to look forward to during this earnings season would be the guidance from Cognizant, Patni Computers and Hexaware and comments from the companies on their customers' technology spend for 2006.

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