Capgemini Q4 Results Keep Indian IT Outlook Optimistic For CLSA — Here's Why

French IT major Capgemini SE's December quarter revenue growth in the BFSI segment and recovery in the US market bodes well for the outlook on Indian information technology companies, according to CLSA.

The BFSI sector, which represents 21% of calendar year 2024 revenues for Capgemini, returned to year-over-year growth in the fourth quarter, with a 2% increase in constant currency terms. This growth was driven by improved discretionary spending, which is a positive sign for major local players like Tata Consultancy Services Ltd., Infosys Ltd., HCLTech Ltd., Wipro Ltd., and Tech Mahindra Ltd., CLSA said in a note on Wednesday.

Similarly, the consumer goods and retail sector (13% of revenues) also saw a return to growth, fueled by increased discretionary spending. Since retail is typically the second-largest vertical for these large-cap Indian IT firms after BFSI, this growth is another positive indicator, the brokerage said.

"We reiterate our optimistic stance on the Indian IT sector due to improved discretionary demand across the US and the BFSI and retail sectors — clearly reflected in CAP's 4Q24 results," the CLSA note said.

Further, North America's recovery continued in the fourth quarter, with year-over-year revenue declining by 1.7%, compared to 3.9% fall in the previous quarter, driven by strength in the BFSI sector.

Generative AI now represents about 5% of the order book, and along with traditional AI, it's a top priority for client spending, followed by cybersecurity and digital core. An emerging use case is mainframe modernisation powered by GenAI, which presents a significant opportunity for Indian IT firms, CLSA said.

Besides these positives, CLSA also noted that Capgemini's weak revenue guidance for 2025 is due to incremental headwinds from its higher exposure to the European-UK region and manufacturing sector than its global and Indian IT peers.

The French IT company sees CY25 revenue growth of -2 to 2%, with 1 to 2% of inorganic contribution, citing a high level of uncertainty due to ensuing tariff wars and geopolitics.

The Nifty IT index fell as much as 1.64% intraday during Wednesday's session, compared to a 0.57% decline in the benchmark Nifty 50. As of 11:45 a.m., most IT stocks were down, particularly largecaps.