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ICICI Securities Report
Domestic brokerage firm ICICI Securitie believes that IT Services is likely to experience stunted revenue growth ahead.
According to the brokerage the sector is bogged down by headwinds emerging from challenging macros basis the conflict in the Middle East, heightened competitive intensity fuelling AI deflation, shift of tech spends towards frontier AI and AI infrastructure companies, and insourcing in GCCs.
The brokerage has turned from neutral to negative on the sector, particularly large-cap IT. The view stems from potentially prolonged low-to-mid single-digit revenue growth ahead (FY24–28E) exacerbated by downside risks –
- larger share of support and maintenance work exposure for large-cap IT, where quantum of AI deflation is higher,
- slow and gradual remodelling (workforce restructuring and shift to outcome-based billing) due to inherent large scale.
ICICI Securities sees the growth gap between large and mid-sized players widening; whereas, the margin gap is narrowing, with larger peers experiencing a thinning of margins, hence prefers select mid-sized companies like Mphasis and Coforge.
The believe also believes the companies' strong deal TCV growth provides near-term visibility of healthy organic revenue growth.
The brokerage is also positive on Happiestminds – one of the few companies with potential to deliver FY27 revenue growth higher than FY26.
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