IT, Telecom Q4 result preview – Uncertainty still persists, recovery expected

IT services sector is expected to report muted growth in Q4 FY24 primarily on account of a weaker discretionary spend due to challenging times in the world’s largest economies. IT automation in North America may show delayed spending or spending cuts moving forward. We believe many large enterprises will shift their focus on cost optimizations, resulting in higher cost take-out deals, vendor consolidation, and lower discretionary spend.

However, easing out supply side constraints along with lower sub-con cost may lead to margin recovery.

Verticals such as banking, financial services and insurance, manufacturing, telecom, retail, and hi-tech are expected to be impacted by the slowdown, thereby weakening FY24 growth momentum. We also believe that the dovish stance taken by the Federal Reserve and expected cuts in the primary rates may infuse some liquidity in the markets, which will support recovery.

Moreover, deal wins for the quarter are likely to remain steady, aided by strong demand for newer technologies like generative AI, machine learning, cloud transformation, and digital transformations.

Our medium term to long-term view on the IT sector still remains constructive and we expect quicker recovery in the second half of the FY25E. Axis Securities