These three IT companies have a higher risk of negative surprises, says Jefferies

According to Jefferies, the revenue decline for IT companies during the March quarter was due to the underperformance of the top 10 clients. "While aggregate revenue outlook of top clients year-to-date has not changed, the profit outlook has worsened," the note said. This implies that client profitability is a key determinant of spends.

Within the verticals, only travel and hospitality has seen an improvement in revenue and profitability estimates for the year. Hotel companies have been increasingly bullish on their prospects and are continuously expanding capacity hoping for this strong demand to sustain.

Revenue estimates have also increased for clients within the life sciences, energy & utilities and retail verticals, they have seen a cut in their profit estimates, which may impact their spending. In any case, IT companies do not have a significant exposure to these verticals compared to other major ones.

The brokerage also says that the near-term demand outlook for companies like Infosys, Tech Mahindra and Wipro could be under pressure, given the steep cuts to both revenue and margin estimates of their clients.

Combining all of these factors, Jefferies believes that Wipro and Tech Mahindra have the weakest growth outlook.

Among Indian IT companies tracked by Jefferies, Infosys is the only stock on which it has a buy recommendation. It has a hold rating on TCS, HCLTech and Coforge, while Wipro, Tech Mahindra and LTI Mindtree have an underperform rating.