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Systematix Report
In this report the brokerage firm Systematix has highlighted that IT services companies are expected to report another quarter of muted growth despite seasonal strength, impacted by client-specific issues, weakness in select verticals and geopolitical uncertainty.
Net profit growth is expected to lag INR revenue growth, mainly due to hedge losses for some companies.
The brokerage expects addressable tech spending for Indian IT services firms to remain softer YoY in FY27E, as enterprises allocate more capital towards AI and GCC expansion.
Over the next couple of years, tier-1 revenue growth is likely to remain modest at -1% to +5% YoY, constrained by AI-led deflation, weak discretionary demand and macro uncertainty.
Infosys is likely to raise the lower end of its FY27E guidance to 2–3.5%, including acquisition contribution. HCLTech is expected to retain its guidance band, while Wipro is likely to guide for -1.5% to +0.5% revenue growth in Q2 FY27E.
The brokerage reinitiates coverage and revise estimates for the seven IT services stocks under its coverage: TCS, Infosys Wipro, HCLTech, Tech Mahindra, Sonata Software and R Systems.
Valuations and View
Current valuations for large-scale IT firms indicate low growth expectations, while payout yields and FCF yields remain attractive.
Within the sector, Systematix prefers Infosys for its strong AI capabilities and robust partner ecosystem, positioning it to benefit from enterprise AI adoption. The brokerage also likes Tech Mahindra for its potential to outperform large-cap peers on growth.
In small caps, R Systems remains its preferred pick, supported by its product engineering capabilities and improving organic growth potential.
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