Based on a strong quarter of consulting sales and bookings by Accenture, and robust growth in new licence sales by Oracle, Kotak Institutional Equities expects blockbuster growth for the top three Indian IT services firms–TCS, Infosys and Cognizant—in the new year
Accenture's November 2010 earnings saw consulting revenues driving growth with a 15% quarter-on-quarter uptick, which clearly suggests increasing discretionary spends, according to Kotak Institutional Equities. Outsourcing revenues also grew a strong 6.5%. Constant currency revenue growth hit double digits for the first time in several quarters and outsourcing order booking was up 28%.
Oracle saw a 14% q-o-q growth in dollar terms. New software licence sales amounted to $2 billion, up 23% year-on-year. This was the highest-ever new licence sales in the November quarter.
Based on these numbers, Kotak Institutional Equities gave a heads-up to its clients about possible upgrades in estimates of tier-I companies. "Our current estimates do not factor in this possibility yet (potential of 30%+ constant currency revenue growth year) and we believe that neither do the consensus numbers. We clearly see a possibility of further revenue upgrades for tier-I names. Also, with most of the Street having reset their rupee/$ assumptions to 43-44.5 for FY12, a weaker rupee could lead to meaningful EPS upgrades as such."
A large part of the hope for higher discretionary spending by US companies is based on Federal Reserve data which suggests that American corporations are sitting on roughly $1.9 trillion in cash!
Kotak expects the best growth to come in mid-cap names such as Hexaware, Mindtree and Satyam. Best large-cap growth is expected from HCL Tech and Infosys. TCS and Wipro seem to be lagging behind in terms of growth and yet they are the most expensive.
IT companies have been outperformers in the last month or so, as they were considered safe havens in the middle of the scams that broke out, and the relatively positive data coming out of the US. Infosys has gone up almost 14% from a low of Rs2,950 on 24th November, while TCS and HCL Technologies are up 16% and Wipro is up by as much as 20%.
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