Although Indian IT companies reported strong revenue growth in the June quarter, with most companies also maintaining or increasing their guidance, analysts remain cautious on the sector for fear. concerned about a slowdown in the US, the largest market.
The Nifty Information Technology Index is down 23% so far this year, compared with a 1% gain for the main Nifty50 index, due to worries about slowing revenue growth, margin problems and company valuations increased.
“We believe the macro downturn poses a potential risk of cutting legacy spending, as historically we have seen a correction,” said Vikas Ahuja, analyst at Antique Stockbroking. strong balance between customer revenue growth and technology spending.” “Big companies like TCSand is a safer bet to play with with current volatility, while we recommend adding quality midcaps like and LT Infotech when tuning. ”
IT stocks have had a significant underperformance in recent months although the sector’s earnings growth is currently in line with the long-term average and guidance for IT companies is generally positive. The stock price of
,,, L&T Infotech, Mindtree and among others, have fallen between 25% and 40% so far in 2022. The one-year forward PE ratios for most companies are close to the historical averages. their history.
According to a report by Kotak Securities. Interestingly, the spending trajectory is stronger among banks that appear more cautious with regard to future expenses and investments, the report said.
“Strong IT spending by US banking and finance professionals is a positive for Indian IT companies. More fundamentally, we find a strong correlation between fixed investment in intellectual property in the US and the performance of Indian IT companies,” said Sujan Hajra, managing director of Anand Rathi Shares said. “Fixed investment in intellectual property in the US is on the rise, which bodes well for Indian IT companies.”
While earnings per share will be supported by a depreciation in the rupee, in terms of margins and availability, analysts expect rentals and attrition to ease ahead.
If the US experiences a milder recession, then companies like Mphasis, Birlasoft, L&T Infotech, and MindTree will be able to sustain high growth rates due to their backlogs of orders, and therefore will have where these companies are in the core portfolio, said Mohit Jain of Anand Rathi Shares.