JPMorgan analysts anticipate that investors will closely scrutinize the upcoming September quarter results and commentary from Indian IT companies, looking for signs of a recovery in deal signings in fiscal 2025 following a challenging year.
"We remain pessimistic about the sector as we haven't observed a significant surge in demand in our recent assessments. We believe the overall outlook is less favorable than last quarter," noted analysts Ankur Rudra and Bhavik Mehta in a recent statement.
Major IT firms such as Infosys Ltd, TCS, Wipro Ltd, and HCLTech have previously cautioned that their clients, primarily based in the United States, have been reducing IT expenditures, deferring, and even canceling contracts due to slowing economic growth and concerns about persistently high interest rates.
"Investors have essentially written off FY24 as a washout and shifted their focus to FY25, hoping for a recovery," the analysts added, explaining the outperformance of the Nifty IT index compared to the Nifty 50 in the last three months.
In this quarter's earnings reports, the spotlight will be on deal signings, as well as the breakdown of new deals versus renewals, in order to assess growth in fiscal 2025, according to the analysts.
However, Rudra and Mehta mentioned that their recent discussions with various industry executives did not reveal "any significant optimism about a demand rebound."
"While there are positive signs in certain areas, overall decision-making and the execution of deals remain slow."
They maintain a more pessimistic view of the sector compared to the broader market.
JPMorgan anticipates single-digit earnings growth, in terms of percentage, for large-cap IT companies in fiscal 2025, while market expectations are for double-digit growth.
Likewise, it expects low double-digit growth for mid-cap companies, compared to market expectations of mid-teens growth.
Nevertheless, JPMorgan upgraded Infosys to a "neutral" rating from "underweight," stating that lower expectations have already been factored in, and the company's significant deal wins provide visibility into fiscal 2025.
