Many software exporters in India cut their guidance after a weak quarter between October and December 2023. The pressure was visible in both revenue and profit margins.
However, the stocks have run up significantly in recent months. The Nifty IT Index is up over 16% since the close on October 26, 2023. Hope floats that clients will start spending again and the pinch of rising costs will ease.
Costs can be absorbed if the business picks up but not everyone is buying the optimism projected by the top CEOs in the IT space.
WATCH: Infosys CEO Salil Parekh says every client is looking at what generative AI can do for them
As global broking firm CLSA puts it, "rubber will meet the road" when the companies like Infosys, Tata Consultancy Services (TCS), Tech Mahindra and Wipro reveal their next quarterly earnings.
While rating Infosys and Tech Mahindra at 'outperform', and giving a 'sell' call on Wipro and LTIMindtree, CLSA said that there is a downside risk to its estimate due to business uncertainties that may emerge from the impending US election in November.
ALSO READ: TCS CEO expects FY25 to be better but says too early to say things will return to "good old days"
US accounts for more than half the revenue for almost all IT companies in India, and the odds of a mid-year recession in the world's biggest economy are still significant.
| Company | Revenue from US | Q3 growth (QoQ) | Q3 growth (YoY) |
| TCS | 53% | -1% | -2% |
| Infosys | 59% | -4% | -5% |
| Wipro | 61% | -2% | -5% |
| HCLTech | 65% | 7% | 8% |
| Tech Mahindra | 52% | -2% | -2% |
Companies like Infosys and TCS have cited the growing opportunity in the use of generative artificial intelligence but analysts are still cautious about how the revenue potential in the near term.
Citing the example of product engineering company, EPAM, which gave a growth guidance of 1-4% for 2024 — despite a favourable base effect due to a 2.6% annual decline in 2023 — CLSA has inferred that the revenue growth hasn't hit the worst yet.
First Published: Feb 16, 2024 4:28 PM IST
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