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Nirmal Bang Report
After two blockbuster years in 2020 and 2021, the Nifty IT index in year-to-date-CY22 has underperformed the Nifty by 3200 basis points. The starting point for the underperformance was the runaway valuation of both tier-I and tier-II IT companies in the context of higher interest rates on the horizon.
The second point was the concern developing around earnings in FY23 and FY24. The concern on FY23 was primarily to do with margins and the one on FY24 was largely to do with demand.
After two-three quarters of margin disappointment starting in Q3 FY22, the sense we have today is that for the tier-I set, Q1 FY23 has likely been a bottom (at least for FY23).
Concerns now shift to strength in demand (QoQ constant currency revenue growth, total contract value addition, pipeline commentary and hiring) for the rest of FY23.
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