Q2 Preview: Seasonal strength, weak rupee to 'drive recovery' in IT space

The usual second-quarter seasonal strength, coupled with the benefits from a favourable currency (depreciating rupee), is likely to drive a continued recovery for

the technology sector, Motilal Oswal said in a report.

Revenue for Tier-I vendors is likely to increase by 9.4 percent YoY in constant currency terms (compared to 7.8 percent in 1QFY19 and 6.8 percent in 2QFY18), taking further strides toward entering a double-digit growth trajectory, it added.

Margins at the same time would be uplifted by the depreciation in INR versus the USD, while also getting support from the improving

performance.

Polarisation in performance continues at two levels, within the Tier-I, where TCS is expected to outperform the rest of the pack, and between

Tier-I and Tier-II, where the latter would deliver materially higher YoY numbers, Motilal Oswal added.

Bottoming cyclical pressures will feed into valuation multiples favourably, while supportive currency movements will underpin earnings

growth, in our view.

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