IT Q2 Results Preview - Soft Quarter, Status Quo Remains: HDFC Securities

BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy..HDFC Securities Institutional Equities.The big news is that not much has changed in the past few months. Most of the demand indicators are trailing 10-15% below levels at the beginning of the year and only slightly better than the July lows; the supply-side factors remain favorable, supporting operational resilience despite soft growth. In Q2 FY24, the IT sector is expected to deliver a soft quarter, although Q2 has historically been a seasonally strong quarter. Growth divergence is expected between companies, with tier-I IT sequential growth ranging from -1.4% to +2.2% and mid-tier IT sequential growth ranging from +0.9% to 3.8%..OutlookThe IT sector’s recent outperformance has been driven by valuation multiples rising by 10% in the last three months and the valuation gap to Accenture narrowing (highly correlated), despite earnings estimates being cut by ~5%. We expect the sector’s revenue growth to recover to ~9% in FY25E, following ~4% in FY24E; the margin is expected to improve in FY25E, following a flat trajectory in FY24E. We increase estimates for HCL Technologies Ltd. and Infosys Ltd. to factor better near–term visibility, supported by the ramp-up of the recent large deals, and roll forward target valuation to September-25E earnings per share. Maintain our selective stance on the sector; downgrade Sonata Software Ltd., Zensar Technologies Ltd. and Cyient Ltd, to 'Add' ('Buy' earlier), given that the recent stock outperformance and limits the near-term upside potential. Prefer LTIMindtree Ltd. among large caps and Persistent Systems Ltd. and Birlasoft Ltd. in the mid-tier IT space..Click on the attachment to read the full report:.IT Q2 Results Preview - Yet Another Quarter Of Consensus Downgrade Likely: Nirmal Bang.DISCLAIMERThis report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime..Users have no license to copy, modify, or distribute the content without permission of the Original Owner.

IT Q2 Results Preview - Soft Quarter, Status Quo Remains: HDFC Securities

Strong deal velocity to support H2 normalisation.

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