Indian IT companies will likely beat the predictions of continued weakness and see strong earnings growth in 2024 on AI spending boost, Omniscience Capital CEO and Chief Investment Strategist Vikas Gupta has said.
India and US tech companies are expected to have a 15 percent earnings growth during the year, Gupta said in an interview to Moneycontrol.
A majority of analysts expect weakness to continue for the Indian IT sector, which has been hit hard as companies in the US and Europe, their biggest markets, cut spendings.
Accenture, whose bulk of the workforce is based in India, gave a -2 to 2 percent revenue growth guidance for the quarter ending in February.
Other analysts estimate -4 to 4 percent quarter-on-quarter revenue growth in Q3FY24 for Indian companies due to high furloughs, weak discretionary spending and project cuts.
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Gupta, however, said the receding risk of a US recession, easing interest rates, increased spending and AI transformation would act as catalysts for IT firms.
“AI is a two-decade theme, and Indian IT companies along with global ones will benefit from Fortune 500 companies’ transition to AI. This spending will come to Accenture, Amazon and Microsoft,” he added.
Omni AI-Tech Global-Artificial Intelligence, Omniscience Capital’s smallcase specialising in IT investments, has given a two-year return of 15.95 percent, according to its website. This beats the Nifty IT index returns, which fell 8.6 percent during the same period.
The Nifty IT index, however, gained 12 percent in the October-December quarter and 27 percent in 2023, outperforming the Nifty’s 11 percent and 22 percent gains, respectively.
Persistent Systems was the best performing stock in the December quarter with 27 percent returns, while Tech Mahindra was the worst of the lot with 4 percent gains.
The global IT companies have fat budgets, which will eventually flow to Indian IT companies such as TCS, Persistent and others, Gupta said. The Indian tech CEOs would deliver an earnings surprise.
“Fortune 500 companies were not going to spend in 2023 because they thought recession was coming. They will only spend what is necessary. They will boost the IT budget when the demand for their services and products continue. With the risk of recession going down, they are poised to spend more in 2024,” he said.
In the second quarter, major IT players reported record deal wins but slashed their revenue growth guidance for FY24.
Infosys, TCS and HCL Tech recorded deal wins worth $7.7 billion, $11.2 billion and $3.96 billion, respectively. Infosys cut growth guidance from 1-3.5 percent to 1-2.5 percent for the FY24, HCL Tech from 6-8 percent to 4-5 percent.
Unemployment at a 50-year low in the US, continuing high nominal growth of nearly 10 percent and real GDP growth of 5 percent showed that the chances of a recession were very low, Gupta said.
The anticipated interest rate cuts in 2024 would lead to FII inflows into India and they would buy largecap indices where IT has major weight, Gupta said.
“If you are an FII with a few billion dollars, you have to buy the largecaps MSCI India or Nifty 50, where IT is the second largest component behind financials,” Gupta said.
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