Macquarie remains optimistic on Indian tech companies

However, business enterprises continue to spend on computers and laptops. This is evident from the financial performance of PC giants like Dell, whose consumer business declined 9 percent in the most recent quarter. On the other hand, its commercial sales increased 15 percent year-on-year.

Macquarie also believes that the forecasts for Indian IT companies, particularly TCS, are very bearish. The firm expects TCS to grow 14 percent in constant currency terms for FY23, followed by 12.5 percent in FY24 due to a high base and caution in spending, and 13.1 percent in FY25.

Consensus estimates expect 8.3 percent US Dollar revenue growth in FY24 and a similar quantum in FY25. "Corporates with strong balance sheets will continue to spend," Menon said.

The margins of Indian tech companies have suffered in recent quarters due to wage hikes and higher attrition rates. Companies shell out more to attract and retain the best talent, thereby hurting their bottom line.

Macquarie expects them to normalise in the third quarter as the current quarter still has cross-currency headwinds and wage hikes that companies like Wipro have to deal with. The firm also expects attrition rates to moderate in the December quarter.

Fresher intake can help moderate the average cost per employee and help margin improvement in FY24 and FY25.

Attrition is starting to normalize.

Margins are not a structural issue

People have been hurt by the PE de-rating that has happened

Investors still waiting to see some signs of improvement in attrition, and margin improvement before buying IT stocks

Don't see much downside from current levels for IT companies