Synopsis :The Indian IT sector is likely to see modest revenue growth in Q2 FY24, with most companies facing margin pressures due to wage hikes. While larger players may experience stable but unspectacular growth, Tier-2 IT firms like Persistent Systems and Coforge are expected to outperform. Major catalysts for sector-wide recovery are anticipated post-December when 2025 client budgets are finalized.
The upcoming Q2 results for major Indian IT firms, including TCS, Infosys, HCL Technologies, Wipro, Tech Mahindra, LTIMindtree, and others, are being closely watched by market analysts. Despite potential sales growth, there are concerns about margin pressures and elevated expectations for the sector. Here's a breakdown of the current scenario:
Revenue Growth Expectations
Analysts expect a positive revenue growth trend for most IT companies in the range of -0.2% to 3.9%. However, there are concerns that growth might not meet the heightened expectations. Healthcare and manufacturing sectors are expected to drive this growth, while fluctuations in other segments may not lead to significant changes in estimates or valuations
Tier-2 IT firms like Persistent Systems and Coforge are projected to outperform larger players. Persistent Systems is benefiting from its focus on high-growth sectors like BFSI (Banking, Financial Services, and Insurance) and healthcare, while Coforge is poised for strong performance despite some uncertainties around its integration with Cigniti.
Margins and Wage Hikes
Margin pressures are likely to affect firms like TCS, Wipro, Coforge, Persistent, and Birlasoft due to wage hikes or specific operational challenges. For most firms, however, margins are expected to stabilize as attrition rates have bottomed out, reducing supply-side constraints.
Key Catalysts for Future Growth
The main catalyst for significant growth in the IT sector is expected after the December quarter, when client budgets for 2025 are finalized. This will provide clarity on changes in client behavior and could drive a more robust recovery for the sector.
Analysts' Top Picks
Among Tier-1 players, HCL Technologies and LTIMindtree are preferred due to their strong capabilities in data engineering and ERP modernization. Infosys is also a top pick, expected to benefit from better deal wins and long-term growth.
For Tier-2 companies, Persistent Systems and Coforge are expected to lead in terms of growth due to their focus on key sectors and efficient execution strategies.
Disclaimer: This article is for informational purposes only. It is important to conduct thorough research and consult financial experts before making any investment decisions.