IT Sector Check - Price-to-Earnings Expansion Explains Entire 12-Month Upside: Nirmal Bang

NDTV Profit’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 NDTV Profit’s subscribers an opportunity to expand their understanding of companies, sectors and the economy..Nirmal Bang Report.Price-to-earning multiple expansion explains the entire return of both tier-I and tier-II IT stocks over the last 12 months as consensus FY25E earnings have seen downgrades. While some in the market believe that PE multiple expansion is a precursor to the start of a consensus earnings upgrade cycle for FY25/FY26, we remain sceptics. We believe it has more to do with strong domestic inflows into equities. The tier-II PE premium of 32% currently versus tier-I we believe is due to the skewed inflow into midcap mutual funds as much as because of better future growth prospects. The market is already assuming FY25 to be a slightly better year than FY24 and that there would be a pent-up demand driven revenue spike in FY26 (which is expected to add on incremental basis revenue a little short of that in blockbuster FY22). And if PE multiples are already expensive on existing earnings, it would require a material upgrade to FY25/FY26 estimates for meaningful returns to be made from here on - unless one is betting on a further PE multiple expansion. Going by the H2 2024 recovery talk by most IT players, a high probability of ‘higher for longer’ Fed Funds rate in the U.S. due to recent hotter inflation prints there and uncertainty around economic and immigration policies of the next U.S. administration, we do not think there is a material upside to the earnings estimate in FY25/FY26..Click on the attachment to read the full report:.Cement Prices Dip To A Two-Year Low; Diesel Price Cut May Go In Vain: ICICI Securities.DISCLAIMERThis report is authored by an external party. NDTV Profit 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 NDTV Profit..Users have no license to copy, modify, or distribute the content without permission of the Original Owner.

IT Sector Check - Price-to-Earnings Expansion Explains Entire 12-Month Upside: Nirmal Bang

PE of tier-II pack versus tier-I pack has expanded dramatically in recent years

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