‘Uncertain times ahead..’: Jefferies on Indian IT companies

While the decline in the employee pyramid and ongoing reforms should help margin recovery and the Q3 results offer limited reason to change course, the brokerage has a cautious outlook on the IT sector. Infosys remains the only buy in the sector.

“After the third quarter results so far, the brokerage house expects total revenue Indian IT firm From 14.6% YoY cc in FY23 to moderate to 6.8% YoY cc in FY24. Our growth assumptions are lower than the street and as growth expectations come down, PE multiples are likely to decline further as seen in the past. Moreover, with Nifty IT still trading at an above-average premium of 17% to Nifty, valuations remain rich. stock pick,

During Q3, the top-4 IT firms posted a QoQ CC growth of 2.5%, which was 110 bps higher than Jefferies’ expectations. Growth in IT firms was driven by the European sector. “While across verticals E&U, manufacturing and life sciences grew well, growth in BFSI, retail and hi-tech was impacted by furloughs as well as lower discretionary IT spend. among IT firms, while TCSQ3 performance was the strongest, Wipro’s was the weakest.”

Even though third quarter growth surprised positively, the near-term growth outlook looks uncertain with all 3 IT firms that provided guidance on growth offering muted growth guidance in 4Q. “We further note that net hiring in 3Q for top-4 companies has been just 2k – the lowest in 10 quarters, with two out of four IT firms reducing their workforce,” the note said. The 1.1% in Q3 reflects growing uncertainty over demand and a sharp slowdown in growth in the brokerage’s view.

The views and recommendations given above are those of individual analysts or broking companies and not of Mint.