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Even as Q3 is a seasonally weak quarter for IT companies because of higher furloughs leading to lower billable hours, CLSA has a varying stance on the aforesaid companies. However, it expects the furlough impact in the banking, financial services, and insurance (BFSI) segment to be similar to last year.
The brokerage also said that recovery is expected particularly in US BFSI getting broad-based across sub-sectors.
CLSA noted that post the recent US election outcome, TCS expects tech budgets to expand in the calendar year 2025. On the other hand, the brokerage expects Wipro to see another leg of re-rating if the company announces any capital allocation changes. Meanwhile, Infosys is now getting into a weak second half of fiscal seasonality with Q4 likely to be even weaker than Q3.
Also Read: Why Citi sees 12% downside in the stock of India’s largest IT services firm
TCS, Infosys and Wipro have given a return of 16%, 27% and 20% to their investors in 2024 (year-to-date).
Last week, HSBC rejigged its stance on IT stocks
on the back of six factors including, uncertainty about Generative Al and GCC) headwinds.
Also Read: This IT stock made investors 80% wealthier in a year — Can it rally more?
While it did not share its quarterly expectation, the brokerage said it expects the industry growth to pick up to 6-7% in FY26 from 3- 4% in the past two years, led by a recovery in the US market. However, the weak outlook for Europe and GenAI uncertainty is likely to restrict the upside, it said.
Other than that global capability centre (GCC) headwinds, although moderating, are likely to continue. The favourable low base of the past two years and idiosyncratic company and valuation differences are expected to have an impact on growth too.
Also Read: This global analyst has a sell call on three IT stocks — Check if you own any
“Overall, we expect the IT sector to perform at least in line with the market in 2025. Improving growth should attract investor interest away from some other sectors, where the demand outlook is deteriorating but valuations are high,” the brokerage added.
HSBC on December 10 upgraded Infosys, LTIMindtree and Mphasis to buy while it recommends holding Wipro. It also downgraded TCS and Coforge to hold and Tech Mahindra to reduce. HSBC noted that its preferred picks are Infosys, LTIMindtree, HCLTech (Hold) and Mphasis.
As of this morning, the sectoral index Nifty IT was trading 0.11% higher at 45,701.95.
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