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Expectations for demand recovery have been delayed. Wall Street now expects demand to recover in the second half of this fiscal year (FY2025).
Guidance from Accenture last month further dampened sentiment about a demand recovery.
Therefore, Wall Street expects conservative guidance from both Infosys and HCLTech.
CNBC-TV18 expects Infosys’ revenue growth to be around 3-5%, while HCLTech’s revenue growth is around 4-6%. But this is only a broad range, and the pace of recovery will still be monitored.
One question raised by analysts is whether the risk of disappointing guidance is partly priced in.
The Nifty IT index has fallen 4.5% in the past month, while the Nifty has gained over 1%.
Hence, IT stocks underperformed. Infosys shares fell nearly 8% last month, while Wipro shares fell nearly 6% during the same period.
That suggests some disappointment may have been absorbed.
Some brokerages also upgraded some stocks.
For example, CLSA recently upgraded TCS and HCLTech from ‘sell’ to ‘underperform’.
CLSA also upgraded Tech Mahindra to ‘buy’ from ‘outperform’.
J.P. Morgan also upgraded Durable Systems to overweight from underweight and LTIMindtree and KPIT Technologies to neutral from underweight.
But it must be noted that despite these upgrades, many brokerages still have “sell” or “neutral” ratings on some top IT companies.
In a report, JPMorgan noted that Nifty IT’s negative price movement last month appears to have exacerbated some weakness, limiting the absolute downside.
Also read | Infosys and TCS are analysts’ top picks based on three factors
Many analysts believe profits have bottomed out in the third quarter, but the recovery is likely to be gradual and late, with the company likely to report low to mid-single-digit revenue growth in FY25.
In Q4 (Q4FY24), TCS is likely to lead with constant currency revenue growth of ~1.3%. The growth will be driven by increased transactions in BSNL and quarter-on-quarter recovery in the banking vertical.
Revenues of many companies, including Infosys, Wipro and LTIMindtree, are expected to fall on a quarterly basis.
According to the CNBC-TV18 poll, HCLTech is the only company with flat or slightly positive revenue growth.
Also read | Infosys’ 40% underperformance against Nifty since 2022 may start to reverse, according to this analyst
The fourth-quarter numbers are also important given the changes in the company’s senior leadership and strategy.
Wipro, for example, said its chief executive, Thierry Delaporte, had resigned before his official term ended.
The company announced the appointment of Srinivas Pallia as its new chief executive. This may mean a change in Wipro’s strategy.
Tech Mahindra CEO Mohit Joshi also talked about unveiling a turnaround strategy in April or the first quarter of this year (first quarter of fiscal 2025).
For Infosys, Wall Street will also be tracking the possibility of a buyback, considering the last buyback ended in February 2023.
Also read | Analysts say Wipro’s new CEO will have tough task ahead while remaining cautious
In short, the 4QFY24 numbers are likely to be less important in terms of financial performance.
However, Wall Street will closely monitor the guidance from Infosys and HCLTech to gauge the pace of recovery in revenue and margins.
Citi also pointed out that from a valuation perspective, NSE IT’s price-to-earnings ratio is 25 times, while the average price-to-earnings ratio in the five years before the epidemic was 18 times.
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