Infosys and HCLTech guidance unlikely to ‘disappoint’, experts say ahead of Q4 results

With a week left for the January to March 2024 quarter and 2023-24 to end, the focus is now on what the next financial year holds. With the end of the quarter comes the start of the earnings season and like every quarter, the results of Indian IT services majors will be keenly watched by the market.

While the tech companies’ guidance for FY25 is awaited, experts believe positive commentary on the demand environment should emerge in a quarter or two. “We have to be cautious about what we are paying for the companies for slightly higher growth. But overall the sector is going to do very well, we are just a quarter or two away from where there should be clarity on the strong demand environment,” Sowilo Investment Managers' Sandip Agarwal told CNBC-TV18 last week.

He noted that the market is expecting a high single-digit guidance from HCLTech and Infosys.

Agarwal is of the view that Infosys is very conservative and, therefore, is likely to maintain its guidance. In the October to December quarter, the company had tightened its FY24 revenue growth guidance to 1.5% to 2% in constant currency terms.

“In the case of Infosys, it is always ultra-conservative, barring one or two instances when it had to cut down. That has happened in the past primarily when leadership changes were happening. It will continue with the conservative stance.”

HCLTech, on the other hand, he said, will not disappoint if the expectations are reasonable.

Girish Pai, Consultant Research Analyst, Nirmal Bang Equities, on March 26 pointed out that the market is a bit jittery about whether IT services firms will deliver mid-single-digit growth or high-single-digit growth.

However, he doesn’t think there would be material disappointment if the companies deliver 4-7% kind of numbers.

“I do see some of my peers on the sell side having higher high single-digit kind of growth numbers. They will probably have to bring those numbers down. But broadly, a 4 to 7% kind of number is built into the market's thought process for FY25. Only a number below that would be disappointing,” he said in an interaction with CNBC-TV18.

He, however, said, Infosys, HCLTech and Coforge are the only three players in the tier-one and tier-two to give guidance, which may be a little lower than what the current street and expectations are.

Agarwal believes that the upcycle of the tech sector could start once the rate-cut cycle begins.

He believes when the interest rate cut cycle starts, a lot of money will be made, especially with FAANG stocks (FAANG is used to collectively refer to Facebook, Amazon, Apple, Netflix, and Alphabet’s Google).

“Today based on commentary, it looks negative, but if you take a six to 12-month call, there is a lot of money which will be made because the Indian IT sector has not at all benefited from what has happened in NASDAQ and what has happened in the big seven in the US,” he explained.

He added that midcap IT stocks will do well but one needs to be watchful of valuations.

According to Sowilo Investment Managers' Agarwal, it is a wonderful opportunity for the investors to lap up a big chunk of one of the best and the market leaders in the tech sector at a good discount and that, too, when most of the clouds around the US economy are slowly fading away.

“Also, the interest rate cycle seems to have almost peaked out and we may see a cut cycle starting soon. And just to put things in context, if you see a stock like Microsoft up almost 67% in a year, despite all the fears of the US recession and hard landing. It is a wonderful opportunity and the price is not at all high (for TCS),” he said.

With the whole upcycle of the tech sector, which should ideally begin once the interest rate cut cycle starts, TCS is a win-win situation for investors at ₹4,000.