Nirmal Bang Equities sees "further downside risk to earnings for the Indian IT services industry for both FY25 and FY26 as current revenue assumptions seem aggressive in the context of industry commentary, the timing of turnaround in growth, prospects of US interest rate trajectory and uncertainty around US economic policies consequent to the presidential elections." "We expect 4-7 per cent constant currency (CC) revenue growth guidance by both Infosys and HCL Tech. Even this may be at risk if the Fed funds rate is not cut materially or if enterprise customers freeze up due to US election uncertainty.
We see ‘slower for longer’ demand conditions through 2024 that could pare consensus earnings expectations," Nirmal Bang said in a report on March 11. The brokerage firm pointed out that the enterprise clients of Indian IT Services firms continue restricting their discretionary spending even though the US real GDP grew impressively in 2023.
Moreover, announcements around large deals have been weak since September 2023. "Demand commentary in the first half of the calendar year (1HCY24) from both Indian as well as global IT services firms post December quarter 2023 results has been cautious across the board.
Although there have been rare comments around ‘green shoots’ in some areas, most players are talking about a demand pick-up only by 2H2024," Nirmal Banh underscored. Also Read: Rally in PSU stocks flawed, book profit, says Kotak Elevated interest rates and the prospects of a shallow rate cut by the US Fed are another matter of concern for the sector.
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