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HDFC Securities Institutional Equities
We expect IT sector growth at 4.0% in FY25E following 2.6% in FY24. Importantly, profit growth is expected to accelerate to a high single digit for FY25E following mid-single digit over the past two years.
We raise target multiples for Wipro Ltd., Tech Mahindra Ltd., and Persistent Systems Ltd., given improving growth/trajectories with a mega deal aiding visibility for Wipro (Reduce), growth momentum in Persistent (Buy), and margin recovery track in Tech Mahindra (Reduce).
Valuation multiples have re-rated, on average, by ~10% over the past month with no change in earnings estimates (mid-single digit cuts over the past three/six months). NIFTY IT index valuations are above the historical premium/discount to NIFTY and Accenture valuations (near peak valuation premium) despite large strides by Accenture on GenAI.
The current valuations at 27 times are more than 10% over the five year average and ~30% above the 10 year average, which limits the upside case.
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