Indian IT Sector Has Not Seen The Worst Yet, Says BOB Capital's Girish Pai
Froth in the sector has come off and expectations have been lowered by investors, Pai told NDTV Profit.
While outlook on the Indian IT sector may be mixed, BOB Capital's Girish Pai says the worst may not be behind just yet.
On Thursday, Accenture said it expects its EPS to be in the range of $12.55 to $12.79 per share for fiscal 2025 as opposed to its previous expectations of $12.43 to $12.79.
This, according to HSBC, signals a neutral to positive signal for the Indian IT sector. While, Nomura said the numbers ring a caution bell on US federal contracts and rising uncertainties.
Limited exposure to US federal contracts alone provides a slim insulation for the domestic IT sector and brokerages flag trouble ahead for the big names, calling for a cautious approach.
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Expectations And Growth
Though optically things look good, the US government being one of Accenture's core customers, has been a key point of pain for the company. The domestic IT sector is free of this worry but uncertainty in the global markets and discretionary spends loom.
Pai, head of institutional research at BOB Capital Markets, said that the froth in the sector has come off and expectations have been lowered by investors. Adding to this, the Indian IT sector has been seeing green shoots in discretionary spends in some specific areas, according to experts.
There are also new verticals that have been coming up, like BFSI in North America, that have been giving discretionary spends, Pai said.
The growth is expected to move back to normalcy and he estimated the numbers to be in mid-single digits, except one offs. Financial year 2026 does not look better, according to him, as its unclear whether its set to be a weaker year than the one before.
"We need to watch out for this, things might pick up in 2027. Its been a few years of weakness for the sector now and I wouldn't think we have seen the worst," he noted.
Girish Pai's Picks
When asked about the rate of growth that has been coming in from the domestic sector, Pai notes that smaller companies have been growing faster.
"Tier two companies have been growing faster due to its size and better management. Until sometime back, they were priced in a lot earlier and trading higher. One can only expect medium returns," he said.
Now as the smaller companies only promise so much, Pai picks the large cap names as they offer better valuations.
"Smaller names have faster growth but valuations are still not there, I think. Valuation is yet to come off. I prefer tier one over two. We have 'hold's and a lot of 'sell's."
His top pick in the tier one space is Tech Mahindra Ltd. and First Source in tier two.
