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Nirmal Bang Report
Nifty IT has outperformed Nifty by 520 basis point in Q2 FY24. We believe that the market is taking a view that the worst is over for the IT industry and that revenue/earnings will accelerate through FY25. We have a non-consensus view that FY25 growth will be only a tad higher than FY24 with risks that it could be as bad or weaker.
The outperformance in Q2 FY24 is also because the market believes that after two successive quarters of weak results (in aggregate), demand has likely stabilised and we could see modest growth in Q2 FY24 and Q3 FY24.
We are building in (-) 1-2% growth on QoQ basis for tier-1 and 2-3% growth for Tier-2 companies for 2Q, which is seasonally a strong quarter. However, the recent Accenture results (Points to a ‘slower for longer' demand) with revenue declining by 3% QoQ in USD terms and flat revenue QoQ at the upper end of the guidance give the impression that our numbers may be a tad optimistic.
Margin improvement QoQ may be constrained due to lack of operating leverage. Some negative surprises are likely in store and another consensus earnings downgrade is on the cards after two successive quarters.
We believe the market has not priced that in or is looking beyond the near-term pain.
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