Analysts' view on TCS, Infosys, and Wipro based on ISG's Q1 deal flows and commentary.

Synopsis : Analysts assess TCS, Infosys, and Wipro in light of ISG's Q1 deal flows and commentary, evaluating their performance and prospects in the IT sector.

 Antique reported that ISG's deal flow data for the first quarter of 2024 shows a continued slowdown in bookings. The firm emphasized the importance of cost optimization and maintaining robust client relationships for domestic IT companies.

As India's IT earnings season approaches, ISG disclosed weak bookings in Managed Services, totaling an annual contract value (ACV) of $10 billion. This decline was primarily driven by weakness in the Americas, particularly in the BFSI sector. Although there was some improvement in BFSI deals towards the end of the quarter, analysts cautioned that higher-than-expected US retail inflation in March could delay anticipated interest rate cuts by the Fed, potentially impacting the BFSI sector in the second quarter as well.

ISG, a global technology research and advisory firm, revised its growth forecast for Managed Services to 3%, down by 125 basis points from the previous projection of 4.25%. However, it maintains its expectation of a 15% revenue growth for XaaS in 2024. Looking ahead, ISG anticipates more stable economic conditions compared to 2023, although challenges persist. Outsourcing may see an increase as companies seek to balance cost efficiency and service quality.

Antique Stock Broking echoed ISG's observations, noting a further moderation in bookings based on ISG's data. However, it emphasized that companies excelling in cost optimization initiatives and maintaining strong client relationships are likely to continue reporting healthy deal total contract values (TCVs). TCS is scheduled to commence the Q4 earnings season in India today.

Regarding the outlook for revenue growth in FY25, ISG highlights the significance of the BFS vertical and expects improvement only in the second half of 2024. The firm suggests that signs of a better demand environment, particularly in the second half of the year, are emerging based on ISG's guidance, recent results, and commentaries. Within the IT sector, HCL Tech and Mphasis are recommended as preferred picks.

Nuvama described ISG's deal flow data for Q1CY24 as overall 'neutral' for Indian IT firms, with Managed Services showing softness and XaaS exhibiting a strong recovery. Despite uncertainties in decision-making processes, the overall deal flow increased both quarter-on-quarter and year-on-year, reinforcing a positive outlook for the sector. Nuvama remains optimistic about the IT sector throughout the year and anticipates that the strong deal wins from previous quarters will gradually translate into revenue in the upcoming quarters, particularly as US macroeconomic conditions improve.