Stock Market today: Nifty IT Index rebounded 1.3% on Thursday and was among top sectoral index performers. The stocks as Coforge, Persistent, TCS, Mphasis, LTIMindtree, Infosys share prices gained up to 4%.
The rebound in the IT index comes after having fallen up to 4.7% year-to-date and around 2.5% in Fiscal year, which provides some relief. The Nify IT index also had underperformed Nifty-50 Index that has risen by around 4.8% year to data and around more than 2% in Financial year 2025 till date . The outlook however remains subdued
Analysts don’t see much change in outlook
The subdued outlook of the IT companies that was likely to get reset post Q4 results has not happened amidst uncertain macros during FY25. The growth reported came muted and margin improvement was not very encouraging, said analysts. The eyes were on growth guidance and FY25 outlook which still remained muted.
Pritesh Thakkar at Prabhudas Lilladher said that FY24 signed-off with another quarter of weak performance within IT services, Although the revenue growth was largely in-line or tad below consensus, the margin improvement or earnings growth was disappointed for selective names.
Recovery hopes remain delayed
Topline performance is still being impacted by the volatility in the three primary verticals: BFSI, Retail, and Communications. While most firms in BFSI have reported either muted or positive USD growth (median +1.9% sequentially), retail growth has been sluggish (median negative 2.3% sequentially) as per Prabhudas Lilladher data.
Prabhudas Lilladher analyst too said that , the suggested FY25 outlook across the board has been lackluster and has fallen below the anticipated line. The same triggered sharper share price correction in Tier-2 names than that of Tier-1, but has led to converge the valuation gap, highlighted analysts.
Analysts at Kotak Institutional Equities in their IT sector report said that IT companies extended outlook for weak demand and macro uncertainty, leading to reset of both growth and margin expectations for FY2025. Reset led to muted growth guidance for all and weaker margin outlook for select companies said analysts. Recovery hopes have been pushed back to FY2026 as per Kotak.
Tier-II see better revenue growth but not margins
Median revenue growth for the IT sector (Tier-I + Tier-II) came in at 0.7% sequentially in constant currency term , although Tier-2 companies continued to outpace Tier-1 names. The Tier-2 have reported median Constant currency growth of 2.1% sequentially, while Tier-1 revenue growth came in at negative 0.6% sequentially.
A modest revenue growth was expected in 4QFY24, and hence was niot a surprise, with the exception of Infosys. The increase in large/mega deals and the reversal of furloughs were the key drivers of growth while the discretionary spending environment remained muted.
TCS led Tier-1 IT with sequential growth of 1.1%. HCL Technologies services business grew 3% sequentially but overall growth was impacted by products seasonality. Revenues declined for Infosys, Wipro and Tech Mahindra highlighted analysts at Kotak.
Thanks to their effective cost-optimization program implementation, Tata Consultancy Services and Wipro fared better on margin improvement, said analysts at Kotak. They added that margin outlook reduced for mid-tier such as LTIMindtree Ltd and Persistent due to aggressive investments to capture market share
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
You are on Mint! India’s #1 news destination (Source: Press Gazette). To learn more about our business coverage and market insights Click Here!
Download The Mint News App to get Daily Market Updates.
Published: 23 May 2024, 05:00 PM IST
