Deal flow, project ramp ups to determine future performance of IT stocks
stocks of top IT companies after their June quarter financial performance seems to have waned. The stocks of Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro, Tech Mahindra, and LTIMindtree have lost between 3% and 6% in August so far driven by market volatility and mounting uncertainty over the demand form the US, a major market for Indian IT sector.
Some of these companies had gained in double digits on bourses in June after showing early signs of improvement in project ramp ups. However, their post-result management commentary continued to be cautiously optimistic despite a sustained trend in deal wins during the quarter amid lack of a marked change in the clients’ approach towards budget allocation.
Majority of the top IT exporters reported either in line or better sequential topline growth for the June quarter than expected, which brought the IT stocks back on investors’ radar. “The disproportionate stock price reaction to the marginal revenue and earnings beat was unanticipated. We agree with the Street’s ‘bottoming’ out thesis, though we do note that consensus high-single digit revenue growth is already baked in an improved environment,” noted Kotak Institutional equities in a report.
IT companies continued to report traction in new deal wins, which offers future revenue visibility. However, there is uncertainty over the time taken to ramp up these deals, which will in turn affect the top line growth. According to Fitch Ratings, the Indian IT sector will continue to be affected by subdued
