Equities in India are set to extend their decline in the coming week as concerns deepen about earnings after a bellwether technology company painted a disappointing outlook, citing difficult conditions for outsourcing business in the wake of the US clampdown on visa rules.

Geopolitical tensions in the Middle East and over North Korea’s rumoured nuclear test preparations will also keep investors wary. After the US missile attacks on Syria and the dropping of the heaviest non-nuclear bomb in Afghanistan, President Donald Trump’s increasingly muscular foreign policy is expected to put markets under pressure.

“There are too many uncertainties out there,” said equity trader Rasesh Patel. “Infosys has muddied the waters and everyone’s going to be watchful about the results.”

Infosys Ltd, India’s second-biggest software services company, reported a 0.8 per cent drop in March quarter profit from October-December despite a 0.7 per cent rise in dollar revenue. It forecast 2017-18 revenue to grow between 6.1 per cent and 8.1 per cent in US dollars, well below 8-10 per cent rise projected by peer Cognizant Technology Solutions Corp for calendar 2017.

“It is a challenging environment,” CEO Vishal Sikka said. “Unanticipated execution challenges and distractions in a seasonally soft quarter affected our overall performance.”

Once the poster-boy of Indian outsourcing acumen, Infosys, like its rivals, face cautious client spending due to the protectionism propounded by the new US administration. The company is trying to move up the value chain by focusing on innovative products, but is unlikely to achieve its ambitious annual revenue target of $20 billion by 2020. Annual revenue crossed $10 billion for the first time in 2016-17.

Adding to Sikka’s troubles is the company’s founder group’s outcry against generous compensation packages to some senior executives. To placate shareholders, the management has decided to return $2 billion in the form of dividends or share buy-backs.

Investors did not take kindly to the offer and Infosys shares fell 3.9 per cent after the result to Rs. 931.40, dragging the main indices lower. The top-30 Sensex, which is closely tracked by fund managers, shed 0.8 per cent over the week, its biggest weekly drop in 2017, to 29,461.45. The broader 50-share Nifty index shed 0.5 per cent, its first decline in three weeks, to 9,150.80.

More pain

Infosys shares are down 8.8 per cent in April, and they are likely to lose more with brokerages downgrading the stock.

Securities house CLSA said the revenue guidance for 2017-18 was “uninspiring” and it suggested further growth slowdown from 2016-17.

“While margin management and cash conversion were positive, it is difficult to overlook its anaemic growth trajectory,” the brokerage said, reiterating its “underperform” rating on the stock.

“We feel Infosys needs to reappraise its growth strategy to maintain market relevance and win back shareholders’ confidence,” it added.

Tata Consultancy Services (TCS), India’s leading information technology company, is scheduled to release its quarterly numbers on Tuesday, and expectations are muted after Infosys’s opening salvo.

“One major difference between TCS and Infosys is that there is a lot of uncertainty about the European operations of TCS,” Mahantesh Sabarad, a senior official at SBI Capital Securities, told ET Now television channel.

“From that perspective, TCS may have a subdued performance and they do not give guidance but the way the analysts would look at it is that they would factor in the lower numbers from the European operations.”

Earnings key

Despite the decline in benchmark stock indices, they are still near their all-time peaks, making the market vulnerable to shocks if earnings fail to live up to market expectations.

Analysts at Deutsche Bank said in a report that they expect companies in the Sensex to report a 9.1 per cent rise in quarterly net profit, their best in a year if achieved, powered by higher commodity prices.

Some analysts and fund managers are betting on profits to rebound only in the second half of the financial year that began on April 1. Higher government spending on infrastructure, faster approvals for projects, pay hikes to workers both in the government and in the private sector and rising farm output and incomes should underpin consumer spending and economic growth.

“Growth is in a U-shaped recovery driven by domestic and global factors,” Sheela Rathi, an analyst at Morgan Stanley wrote in a note. She expects Sensex profit growth of 18 per cent in 2017-18 and 24 per cent the year after.

Last November’s shock government crackdown on unaccounted wealth, following by a rash of initiatives to smoke out tax dodgers, discourage cash transactions and bolster digital payments that can be easily tracked would have an impact on economic activity, particularly in the unorganised small and medium sectors that dot urban, semi-urban and in the countryside.

The quarterly earnings would show the scars of the cash crunch — caused by the abrupt withdrawal high-value bank notes that comprised 86 per cent of the currency in circulation — which hit consumer spends as well as factory activity. The situation has returned to normality but there are lingering concerns about how greater scrutiny would play out on the workings of small units.

Some of the results due are IndusInd Bank and Yes Bank on Wednesday, Mastek, MindTree, Hindustan Zinc on Thursday, and HDFC Bank and ACC on Friday.

The writer is a journalist based in India.