The Street is familiar with the divergence in the performance of Tier-1 software services companies. But the fourth quarter will see both Tata Consultancy Services (TCS) and Infosys reporting softer growth, albeit for different reasons. So far, TCS has been leading the sector's growth. In the March quarter, it cited seasonality and sequential decline in the India business for its softer guidance, while Infosys gave the usual spiel on delayed ramp-ups and project cancellations.
The Street expects Infosys to end FY14 with 11.5-12 per cent dollar revenue growth, the lower end of its guidance. Infosys is likely to report a sequential decline in dollar revenues, while TCS is expected to exit FY14 with a year-on-year dollar revenue growth of 16 per cent and a sequential one of two per cent.
Business growth prospects are looking good this quarter; so is the outlook on margins. Compared to last year, Tier-I firms are set to report an improvement in operating margins. Sequentially, there may be some impact due to the rupee's recent appreciation, but most companies have indicated stable margin environment. Most brokerages are positive on the sector as growth will now drive the valuations. With growth of both Tier-I and Tier-II now converging, complex capabilities would be required for further growth. Growth will also be aided by macro-economic improvements in the US and deal wins in Europe.
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