Short Call | Is 2025 the year for IT companies? Hindustan Unilever, Persistent Systems in focus

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The Indian IT sector is at a crossroads, caught between the promise of long-term growth and the uncertainties of a rapidly shifting global landscape. As the Nifty IT index continues to deliver jaw-dropping returns compared to the Nifty 50, investors are left wondering: Can the sector sustain its outperformance, or will emerging headwinds derail the recovery narrative?

2025 holds the key to this unfolding drama. The sector is riding a wave of optimism driven by easing macroeconomic pressures and improving demand, especially from BFSI clients. Analysts are placing big bets on a broader recovery, with expectations of a technology spending surge as businesses look to modernize, optimize, and adapt to post-pandemic realities.

Large-cap players with diversified portfolios are poised to ride these disruptions, while agile mid-cap firms are carving out niches in high-demand segments. The focus is shifting beyond BFSI, with Hi-Tech and other industries emerging as potential growth engines, offering a tantalizing glimpse of what the future could hold. The performance of Persistent Systems and Coforge are fine examples of just how nicely poised the sector is.

But all isn't rosy. The possibility of fewer rate cuts looms large, threatening to disrupt the flow of investments and slow recovery trajectories. Possible announcements of restrictive trade measures by Donald Trump could add another layer of complexity, casting a shadow over growth prospects in key verticals. Furthermore, client budget finalizations for 2025, often a bellwether for the industry’s health, remain a pivotal moment that could either reassure markets or send ripples of concern.

Hindustan Unilever (Rs 2,325, -1%)

Reported Q3 earnings that came under expectations, and flat volume growth as margins took a hit.

Bull Case: HUL has proved its ability to effect price hikes and ability to grow ahead of market, which, combined with an improved outlook for S&D and personal care, and strong growth in processed foods and beverages, boosts brokerages' positive outlook on the company

Bear Case: Further rupee depreciation will affect the price of imported raw materials. Further, the price war in HUL’s popular segments with new entrants entering the fray could hit the company hard, noted Nuvama. If any corrections in raw materials happen, competition from regional players poses some risk.

Persistent Systems (Rs 6,270, 10.3%)

Shares gained after the company reported robust growth in its consolidated net profit and revenue for the December quarter.

Bull Case: Posted a consolidated net profit of Rs 372.99 crore, marking a sequential rise of 15 percent and a 30 percent year-on-year increase. Revenue impressed, growing by 6 percent QoQ and 23 percent YoY to Rs 3,062.3 crore. Added a major client in the energy services sector, with its order pipeline now exceeding $1 billion.

Bear Case: Brokerages remain cautious about the company's valuation and await a better entry price to become more constructive on the stock. Revenue saw an impact of 100 basis points due to furloughs.

(With inputs from Zoya and Neeshita)