Update on Information Technology Sector By Karvy

Currency Headwinds To Restrict Near Term Upside

Currency headwinds will adversely impact Indian IT firms’ reported USD numbers in 4QFY15 and FY16. The USD has strengthened considerably against key currencies like the EUR, GBP and AUD given improving US economic data and likelihood of the US Federal Reserve increasing rates later this year. We expect 320bps-600bps impact on IT firms’ USD revenue growth in FY16 owing to USD strength, even as volume growth estimates remain unchanged. We downgrade revenue/earnings by 1%-5% for FY16E/FY17E factoring in USD strength. We remain structurally positive on Indian IT given strong growth prospects and recommend accumulating on any decline. Our top picks are HCLT and Tech Mahindra in the large cap space, while we like Cyient in the mid cap space.

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