Connect with us

Headlines of the Day

IT Q4 Results Preview – Weak FY24 exit

After a 410 basis points outperformance by Nifty IT against Nifty in 2023, it has underperformed by 260 basis points quarter-to-date. Elevated price-to-earning multiples of tier-I and tier-II players is either a sign that there is an earnings upgrade cycle in the offing for FY25/FY26 and/or that flows into equities are expected to remain strong going forward.

We think that the earnings do not have a material upside (Continued uncertainty to keep a lid on spending).

We believe that Q4 FY24 will be a better quarter QoQ largely because of a higher number of working days. The post quarter commentary on demand conditions for 2024/FY25 will be the highlight. Consensus (including us) is building in a modestly better FY25 versus FY24 on the back of strong order inflow in FY24 and expectation of a spending pick-up in H2 CY24. Guidance by some global IT companies paints a different picture as a few of them (Capgemini, Cognizant, Tietoevery and Globant) are guiding towards modestly weaker growth in 2024 versus 2023 even after assuming a pick-up in H2 CY24.

Recently Accenture lowered its FY24 (year-ender August) guidance but pointed to likely stronger exit, primarily driven by higher contribution of acquisitions and large deal wins (Update).

We expect 4-7% constant currency revenue growth guidance by both Infosys Ltd. as well as HCLTech Ltd. for FY25 with modestly positive demand commentary versus FY24, especially on discretionary spending.

The H2 2024 rebound hope is at risk due to:

  1. U.S. interest rates remaining higher for longer,
  2. Expectations of dramatic changes in policies post U.S. elections in Nov. 2024 if Donald Trump wins. The announcement on large deal wins by Indian IT players have been relatively muted since September 2023.

We persist with our ‘Underweight’ stance on the IT sector as we believe that we are in a ‘slower for longer’ demand environment and the risk is for current consensus estimates to be cut rather than raised. NDTV Profit

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2024 Communications Today

error: Content is protected !!