After a “washout” year, the analysts at J.P. Morgan anticipate that investors will scrutinize the upcoming second-quarter results and commentary from Indian IT businesses in search of evidence of a revival in contract signings in fiscal 2025.
Our outlook on the industry is still pessimistic because our most recent observations haven’t revealed any significant improvement in customer demand. According to a note released on Wednesday by analysts Ankur Rudra and Bhavik Mehta, “We think that the overall setup is not as positive as it was during the previous quarter.”
All of the major IT companies, including Infosys (INFY.NS), TCS (TCS.NS), Wipro (WIPR.NS), and HCLTech (HCLT.NS), have previously issued warnings that their clients, the vast majority of which are based in the United States, have been reducing their IT spending, delaying, and even canceling contracts as a result of a slowdown in economic growth and fears of higher interest rates remaining in place for a longer period.
“Investors have assumed FY24 is a washout and shifted focus to FY25, hoping for a rebound,” the analysts said, adding that this explained why the Nifty IT index (.NIFTYIT) has outperformed the blue-chip Nifty 50 (.NSEI) during the last three months. “Investors have assumed FY24 is a washout and shifted focus to FY25,” the researchers said.
According to the opinions of the market experts, the signing of new deals and the proportion of new deals against those renewals will be the primary focus of the earnings reports for this quarter.
Despite this, Rudra and Mehta said their recent discussion with several industry officials did not reveal “any meaningful optimism of a demand rebound.”
“There are green shoots in certain paths,” the author writes, “but overall decision-making and deal ramp-ups remain sluggish.”
They continue to have a more pessimistic outlook on the sector than they do on the overall market.
J.P. Morgan anticipates that large-cap information technology businesses will have profit growth in percentage terms in the upper single digits in fiscal 2025. In contrast, the market expects earnings growth in the double digits.
In a similar vein, it anticipates growth in the low double digits for mid-cap businesses, although the market as a whole anticipates growth in the mid-teens.
Despite this, J.P. Morgan changed its rating for Infosys (INFY.NS) from “underweight” to “neutral,” stating that lower expectations had already been baked in and that the company’s significant contract wins offer visibility through the fiscal year 2025. Next week, TCS, Infosys, and HCLTech will announce their results.
