Will the IT sector turn the corner in Q2? Here’s what analysts are saying

HSBC said margin has downside risk, while most funds are still underweight on IT

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The IT sector is likely to see growth bottoming out in most verticals in Q2 FY24, while margins may have downside risk, according to analysts.

In a note, HSBC said it sees growth bottoming out in most verticals in Q2 amid likely pick-up in segments like hi-tech and manufacturing.

Acceleration is only gradual and is already factored in Street estimates, it added.

HSBC further said margin has downside risk, while most funds are still underweight on IT.

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Meanwhile, Kotak Institutional Equities said it expects recovery in revenue growth for a few large companies to 9-10 percent In FY25.

The recovery will be led by ramp-up of mega deals signed recently and a strong pipeline, it noted.

Companies that can address both costs and transformation journey are best positioned, Kotak added.

Its top picks in the IT space are Infosys, TCS and HCLTech.

At 10.55 am, shares of Infosys were trading 0.43 percent down at Rs 1,484.70 on the BSE, while TCS inched up 0.20 percent to Rs 3,612 and HCL Tech slipped 0.37 percent to Rs 1,300.

Also Read: These 5 sectors will report strong earnings in Q2 FY24, says Nishit Master

Indian IT majors saw a sombre start to the earnings season in Q1, where their comments highlighted an uncertain demand environment, cuts in discretionary spending, project delays and a decline in people addition.

The IT industry is bearing the brunt of global macroeconomic headwinds amid high interest rates and concerns over slowing growth in its major markets US and Europe.

The top five Indian IT companies (by market capitalisation) have seen their sequential revenue growth on a constant currency basis at anywhere between -2.8 percent and 1 percent in Q1, a far cry from the high single-digit and double-digit growth seen last year. The biggest shocker was Infosys’ sharp guidance cut for the year from 4-7 percent to 1-3.5 percent.

The Nifty IT index is up around 14 percent this year till date, compared to a 9 percent jump in Nifty during the same period.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.