With the March quarter earnings season just around the corner, Citi has issued a note on the IT sector, predicting yet another subdued year of growth as macro headwinds continue to persist amid the Iran War.
In its latest note, the brokerage believes that there is an increased risk of macro impact in early FY27, while other potential headwinds could also weigh on the sector.
Keeping that in mind, the Indian IT could be looking at a fourth consecutive subdued growth year, with the March quarter likely to see a muted sequential revenue growth of just 1% for the top five IT companies, when it comes to organic services.
Citi is keeping a close eye on management commentary, especially on Middle East-related impact. It is also watching out for any commentary regarding second-order impact, TCV trends, as well as artificial intelligence, which has become a central theme in the Indian IT sector now.
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Citi adds that the IT sector continues to show slow and uneven recovery, with the margin trajectory being a key monitorable. In the near-term, the rupee depreciation should help, with the local currency notably breaching the 94 level against the US dollar for the first time on Friday.
The brokerage, therefore, continues to be cautious on the IT sector, with Infosys and HCLTech being the preferred counters in the large-cap space.
Infosys has recently been in the news, following two acquisitions worth up to $560 million. The announced deals may help the company get access to new clients and augment its capabilities in the life sciences and healthcare verticals, according to brokerages.
Citi, though, has refrained from having a buy call on Infosys, even after the Optimum Healthcare IT and Stratus acquisitions. The brokerage maintains a neutral stance on the counter, with a target price of Rs 1,395.
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