IT Services Q1 Results Preview - Will ‘Slower For Longer’ Fears Be Validated? Nirmal Bang

Nirmal Bang Report

Key Points

• We expect most companies under our coverage to deliver a weak Q1 FY24 QoQ in what should have been a seasonally strong quarter. There is a fair probability that the upper end of revenue guidance provided by Infosys Ltd. and HCL Technologies Ltd. may be scaled back. Q2/H2 FY24 growth pick up indicated by many companies may need to be tempered. That has likely led to Nifty IT underperforming Nifty by 750 basis points in Q1 FY24. Consensus expectation of revenue uptick in FY25 may be at risk if U.S. recession gets pushed back to 2024. That could be a dampener on sector performance due to a ‘slower for longer’ fundamental performance.

• S&P 500 earnings has been better than expected in March 2023 quarter, but customer caution over the last three months has led to technology and IT services companies downgrading their outlooks. Large banking, financial services clients in the U..S have become cautious spenders despite record profits. Need to see if the recent stress tests by the U.S. Fed, which the banks cleared will lead to easing up on the caution. Market will try to determine if customers have frozen spending plans for 2023 at weak levels and will revisit them only in early 2024.

• We believe Nifty IT will continue to underperform Nifty over the next six months.

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