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Jefferies sees more earnings downgrades for IT companies

Indian information technology companies are likely to see more pain as disappointing fourth-quarter results and a weaker outlook attract earning downgrades, according to Jefferies India Pvt. Limited. The brokerage remains selective, with Infosys Ltd. being their only pick in large-cap IT stocks.

Management commentary points to a weaker-than-expected growth outlook in FY25. With key margin levers nearing optimal levels, the scope for meaningful expansion in margins is low.

Jefferies cut its aggregate revenue growth expectations by 90–190 basis points for FY25–26 and noted that a continued reprioritisation of IT spending has kept a lid on growth.

Despite up to 7% cuts to the consensus forecast for earnings for the sector last month, Jefferies still sees further risks to earnings.

On the current IT earnings, Jefferies noted that revenues were disappointing and their margin performance was mixed. Management commentary remained subdued, and growth guidance for FY25 disappointed across the board, which was the “key negative surprise”, the note said. But order book growth was strong and much better than last year, implying better revenue growth in FY25 vs. FY24, it said.

Infosys is Jefferies’ only ‘buy’ in the sector due to its better near-term growth visibility and reasonable valuations. The brokerage downgraded LTIMindtree Ltd. and Coforge to ‘underperform’ due to rising uncertainty in their growth and margin outlook. NDTV Profit

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