Q2 for IT: Modest volumes, flat pricing

“Recession would be the main driver of growth,” said Harit Shah, an analyst with Angel Broking Firm. “I don’t expect there to be too much volume growth”. Similar sentiments are echoed by Gaurav Dua, head of research at Sharekhan. “Topline Q2 growth is mainly due to the 4 per cent depreciation in the rupee, amidst an environment of modest volume growth and flat pricing,” he explained.

A depreciating rupee positively impacted Infosys and Satyam which had lower hedging positions in Q1 2008 than Wipro and HCL Tech. For TCS, the forex losses would be limited as it had a higher portion of options in its hedging position. However, the operating profit margins of Satyam, Wipro and HCL Technologies are expected to decline because of the wage hikes implemented in the quarter.

Infosys and TCS would not face declining profit margins as their wage hikes had been given out in the previous quarter, says the report. Concerns remain about an appreciating US dollar that could impact performance of IT companies under the US GAAP, which bill 25-30 per cent of their revenues in British pound and euro. The dollar has appreciated by 8.5 per cent and 8.9 per cent against the Euro and the pound respectively.