IT stocks rally upto 4% as Q2 earning season begins today
Q2 earnings of India's top IT firm Tata Consultancy Services are due later in the day.
Shares of Wipro were the top gainers in today’s trade as the stock surged up to 4% to Rs 423.8 apiece. While, shares of Mphasis, and Persistent Systems rose over 2%.
Coforge, LTIMindtree, L&T Technology Service, and Infosys surged over 1% each.
Although the September quarter has been seasonally strong for Indian software exporters, analysts stated this time Q2 earnings are likely to show a continuation of weak demand with macro uncertainty prolonging.
«We expect continued weakness of India's IT services companies (particularly in CMT vertical and discretionary revenue) to weigh on the sector's 2QFY24F and FY24F revenue growth outlook. We believe the void created by the lower number of small-sized and discretionary projects along with delays in client decision-making and ramp-up of won projects in certain cases will lead to both revenue and margin disappointments in the near term, given the ‘sticky’ nature of costs,» Nomura's Abhishek Bhandari said.
His analysis suggests the current slowdown to be an entire FY24 phenomenon rather than 1H and the impact possibly extending to FY25 discretionary spends.
What to expect from Q2 earnings season:
1) Revenue growth
While Nomura expects largecaps to report revenue growth ranging from -1% to +2% QoQ and midcaps to report growth ranging from +0.7% to +3.3% QoQ in constant currency (cc) terms, Jefferies expects aggregate revenues to grow by 0.5% QoQcc, marking a return to growth after two-quarters of revenue decline.
«We expect Infosys (+1% QoQcc) to lead on growth, while TechM (-1% QoQcc) and Wipro (-1% QoQcc) are likely to lag.
