IT companies’ quarter likely to be slow again

IT companies should again report a slow quarter as customers continue to limit discretionary spending along with general seasonal weakness. Reversing the furloughs should help lead to some gradual recovery. Midcaps are expected to outperform again; “We expect them to post sequential growth of 1-5 per cent compared to -2 per cent to +2 per cent (USD growth) for large-caps,” the brokerage said.

JM Financial Institutional Securities said the recent soft demand trend for IT services companies is likely to continue in 4QFY24. Quarterly guidance from global competitors already points to a weak start to the year. Accenture’s commentary indicated further tightening of the IT budget from January. The brokerage said the furloughs are likely to extend into the fourth quarter, indicating an increase in the budget. TCS will likely lead the growth, helped by the BSNL deal ramp. Under coverage, midcaps will perform relatively better. The Nifty IT index has given back all its year-to-date gains, minimizing the losses. But expectations are still not low enough for a positive surprise to be possible. Weaker-than-expected guidance could change that. This would be a good entry point, the brokerage said.