IT Services Q1 Results Preview - Seasonally Strong Quarter To Be Weak Due To Macro: IDBI Capital

IDBI Capital Report

Q1 is the strongest quarter for IT companies. However, current macro conditions are expected to impact revenue growth of IT companies. Banking, financial services and insurance, retail, communication and hi tech are witnessing higher stress.

This coupled with slowdown in discretionary spend, project ramp downs and lower conversion of total contract value to annual contract value is impacting near term growth. We expect even those verticals not impacted will have cautious outlook.

Hence, for Q1 FY24E we expect large caps to register dollar revenue in the range of flat to -2% QoQ trend aided by 0-60 basis points cross currency tailwind.

Among mid caps we expect -2% to +3% QoQ growth. We expect Coforge Ltd. and Zensar Technologies Ltd. to outperform tier- growth.

Further, in terms of margins we expect tier-I to register flat to -118 bps decline in margins mainly led by wage hike and lower revenue growth. Infosys Ltd. and Tata Consultancy Services Ltd. are our top picks.

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