HCLTech is too likely to retain its revenue and margin guidance.CLSA says stable guidance is a positive.Wipro gives quarterly guidance.
For next quarter, many believes that it should be zero to 2%, though some think they could still give a guidance of -0.5-1.5%.Nomura has turned positive on the sector.CLSA gave Wipro a double upgrade, which lifted the stock.However, CLSA is cautiously optimistic about the sector and expect it to remain in an earnings downgrade cycle.Jefferies and UBS are selective in the sector on the back of rich valuations.Abhishek Bhandari, ED-Tech and Internet- Equity Research at Nomura India believes that the sector is at the bottom of the earnings downgrade cycle.“We might be looking at improvement in discretionary demand sometime in early next year, once the rate cut cycle starts and the US election gets over fueling optimism with the US corporates,” he said.According to Bhandari, the investors should start looking at the sector more constructively.
Second, there is no immediate sign of demand recovery.
Sectors such as BFSI, retail, and telecom continue to face challenges, leading to deferred growth expectations.Valuations of the sector continue to be at a premium.
CLSA says the Nifty IT is trading at a 30% premium versus an average of 20% of the Nifty implying limited room for multiples to rerate sharply from hereon.
Indian information technology (IT) companies have seen considerable downward revisions in their earnings estimates over the last two quarters, raising a key question on everyone's mind: has the cycle of earnings downgrades come to an end?Particularly in January-March 2024, earnings estimates for companies like Infosys and Wipro were reduced by as much as 15%, following reductions in October-December 2023.Consequently, some analysts believe that earnings per share (EPS) estimates have been lowered sufficiently, suggesting that there might be little scope for further downgrades.In the April-June 2024 quarter, some analysts expect an improvement in the quarterly growth rate.This improvement will be driven by three key factors: firstly, seasonal strength, as the first and second quarters are typically stronger; secondly, the ramp-up of large deals secured in the previous year; and thirdly, a decrease in the severity of cuts to discretionary spending.A CNBC-TV18 poll projects Infosys to lead with a revenue growth of 2.35% sequentially, followed by Tata Consultancy Services (TCS) at 1.5%. Wipro revenue is expected to remain flat, while HCLTech may see a revenue decline of about 2% on a sequential basis.Infosys is expected to lead primarily due to the ramp-up of previously secured deals and a low base.For TCS , growth is anticipated from the continued contributions of the ramp-up in the BSNL contract.The sentiment around Wipro has turned increasingly positive on the Street over the last two quarters, bolstered by the appointment of a new CEO and anticipation of a potential buyback.After five consecutive quarters of revenue decline, Wipro is showing signs of stabilisation, with the Street hopeful that the downturn has been halted.HCLTech's revenues are projected to decrease by around 2%, as the company previously indicated that offshoring a large project would have a negative impact.Analysts expect most companies to hold on to their guidance.For Infosys, it stands at 1-3% revenue growth and margin at 20-22%. HCLTech is too likely to retain its revenue and margin guidance.CLSA says stable guidance is a positive.Wipro gives quarterly guidance. For next quarter, many believes that it should be zero to 2%, though some think they could still give a guidance of -0.5-1.5%.Nomura has turned positive on the sector.CLSA gave Wipro a double upgrade, which lifted the stock.However, CLSA is cautiously optimistic about the sector and expect it to remain in an earnings downgrade cycle.Jefferies and UBS are selective in the sector on the back of rich valuations.Abhishek Bhandari, ED-Tech and Internet- Equity Research at Nomura India believes that the sector is at the bottom of the earnings downgrade cycle.“We might be looking at improvement in discretionary demand sometime in early next year, once the rate cut cycle starts and the US election gets over fueling optimism with the US corporates,” he said.According to Bhandari, the investors should start looking at the sector more constructively. Among the large-caps, Infosys and Wipro are the ones on which he is more bullish.“In the midcaps, we like Coforge and Birlasoft and we recently also upgraded Firstsource,” Bhandari said.He thinks that the sector is at an inflection point and if there is no disappointment on earnings, there is no reason why the IT stocks should fall.However, Kumar Rakesh, an India Analyst, at BNP Paribas doesn’t think that one can see an earnings upgrade happening for the IT sector.Rakesh believes that the first leg of an uptick in IT stocks will be driven by valuations and within valuations, it will largely be driven by the sector.“Our preferred pick is Infosys,” he said.Several factors are influencing current market conditions: First, stocks have gained 15% over the last month. Second, there is no immediate sign of demand recovery. Sectors such as BFSI, retail, and telecom continue to face challenges, leading to deferred growth expectations.Valuations of the sector continue to be at a premium. CLSA says the Nifty IT is trading at a 30% premium versus an average of 20% of the Nifty implying limited room for multiples to rerate sharply from hereon.
