Infosys, TCS, TechM, HCL Tech, Wipro: What analysts say on IT stocks ahead of Q2 results
Infosys, TCS, HCL Tech: Kotak Institutional Equities is expecting a muted revenue growth of 0.6-0.8 per cent for Tier 1 IT players in an otherwise seasonally strong quarter.
- Oct 2, 2023,
- Updated Oct 2, 2023 12:36 PM IST
Ahead of Q2 results season, Accenture's fourth quarter results and its revenue guidance came as a bit of disappointment for the domestic IT sector, raising concerns that the anticipated recovery in demand could not materialise in the second half of the financial year. Analysts largely remained cautious on the sector outlook and said some reversal in Nifty IT, after a 14 per cent up-move over the past six months, is in order.
Accenture logged a quarterly revenue of $15.99 billion, up 4 per cent YoY in constant currency terms and at the mid-point of its guidance band (2-6 per cent YoY), the second quarter in a row. Its FY24 guidance of 2-5 per cent YoY was uninspiring.
Kotak Institutional Equities is expecting a muted revenue growth of 0.6-0.8 per cent for Tier 1 IT players in an otherwise seasonally strong quarter. EBIT margin, it said, would drop marginally on a year-on-year (YoY) basis, with the quarterly movement influenced by the wage revision cycle.
"We expect muted revenue growth for mid-tier, including ERD names. Also, we expect strong, and in some cases, record deal TCVs that will set the platform for FY2025E. We expect sharp EPS cuts in Tech Mahindra, moderate ones in others (1-3 per cent) and a negligible cut for Infosys. No change in company guidance, except a marginal cut for HCL Tech," Kotak said.
The brokerage has retained its constructive view on Infosys, HCL Technologies in the largecap names and Cyient in the midcap basket. Antique Stock Broking has HCL Technologies and LTIMindtree among its largecap picks.
Nomura India said discretionary demand is unlikely to recover meaningfully for the India IT industry in the second half and possibly FY25. It maintained its cautious stance on the sector.
"While growth for large-cap Indian IT should improve in FY25F (8.2 per cent YoY) versus FY24F (3.2 per cent YoY), we expect it to be driven by cost take out deals. We expect operating performance to vary significantly across companies in FY24-25F," the brokerage said. Nomura liked TechM among large-caps while it maintained its 'Reduce' rating on TCS.
Elara Securities said Accenture's Q4FY23 result indicates a cautious read-through for Indian IT peers. Although outsourcing growth was robust at 9.8 per cent YoY, outsourcing deal wins were down 17.5 per cent YoY at $8.1 billion.
"Accenture has shown strength in managed services for the past many quarters, which recalibrated downwards in Q4. The 2-5 per cent YoY CC FY24 guidance does not paint a promising picture of demand environment and management commentary also does not lend confidence on solid turnaround in H2. Expect large-cap Indian IT plays to underperform while select mid-caps may show more resilience," it said.
JM Financial said given that Accenture's full year guidance is a first peek into potential growth trajectory for FY25, its underwhelming guidance as an incremental negative for the sector. For Emkay Global, Infosys, HCL Technologies and Wipro are top three bets in the same order. Its pecking order is as follows: LTIMindtree, Tech Mahindra and TCS.
Also read: TCS, HCL, Infosys: Here’s why Morgan Stanley upgraded its target price for IT stocks
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Ahead of Q2 results season, Accenture's fourth quarter results and its revenue guidance came as a bit of disappointment for the domestic IT sector, raising concerns that the anticipated recovery in demand could not materialise in the second half of the financial year. Analysts largely remained cautious on the sector outlook and said some reversal in Nifty IT, after a 14 per cent up-move over the past six months, is in order.
Accenture logged a quarterly revenue of $15.99 billion, up 4 per cent YoY in constant currency terms and at the mid-point of its guidance band (2-6 per cent YoY), the second quarter in a row. Its FY24 guidance of 2-5 per cent YoY was uninspiring.
Kotak Institutional Equities is expecting a muted revenue growth of 0.6-0.8 per cent for Tier 1 IT players in an otherwise seasonally strong quarter. EBIT margin, it said, would drop marginally on a year-on-year (YoY) basis, with the quarterly movement influenced by the wage revision cycle.
"We expect muted revenue growth for mid-tier, including ERD names. Also, we expect strong, and in some cases, record deal TCVs that will set the platform for FY2025E. We expect sharp EPS cuts in Tech Mahindra, moderate ones in others (1-3 per cent) and a negligible cut for Infosys. No change in company guidance, except a marginal cut for HCL Tech," Kotak said.
The brokerage has retained its constructive view on Infosys, HCL Technologies in the largecap names and Cyient in the midcap basket. Antique Stock Broking has HCL Technologies and LTIMindtree among its largecap picks.
Nomura India said discretionary demand is unlikely to recover meaningfully for the India IT industry in the second half and possibly FY25. It maintained its cautious stance on the sector.
"While growth for large-cap Indian IT should improve in FY25F (8.2 per cent YoY) versus FY24F (3.2 per cent YoY), we expect it to be driven by cost take out deals. We expect operating performance to vary significantly across companies in FY24-25F," the brokerage said. Nomura liked TechM among large-caps while it maintained its 'Reduce' rating on TCS.
Elara Securities said Accenture's Q4FY23 result indicates a cautious read-through for Indian IT peers. Although outsourcing growth was robust at 9.8 per cent YoY, outsourcing deal wins were down 17.5 per cent YoY at $8.1 billion.
"Accenture has shown strength in managed services for the past many quarters, which recalibrated downwards in Q4. The 2-5 per cent YoY CC FY24 guidance does not paint a promising picture of demand environment and management commentary also does not lend confidence on solid turnaround in H2. Expect large-cap Indian IT plays to underperform while select mid-caps may show more resilience," it said.
JM Financial said given that Accenture's full year guidance is a first peek into potential growth trajectory for FY25, its underwhelming guidance as an incremental negative for the sector. For Emkay Global, Infosys, HCL Technologies and Wipro are top three bets in the same order. Its pecking order is as follows: LTIMindtree, Tech Mahindra and TCS.
Also read: TCS, HCL, Infosys: Here’s why Morgan Stanley upgraded its target price for IT stocks
Also watch: Titan, DMart, DLF, and more: This market expert is recommending these stocks ahead of festive season
Also read: Infosys, ITC, IndusInd Bank: Trading strategies for these 3 largecap stocks