Infosys, Wipro, TCS: Ahead of HCL Tech Q4 results, Emkay says sell IT stocks on rise
Ahead of HCL Tech's Q4 results, Emkay Global said IT companies have not reported negative sequential growth rates outside recessions witnessed during the global financial crisis of 2008 or the 2020 pandemic.
- Apr 22, 2025,
- Updated Apr 22, 2025 8:53 AM IST
Emkay Global in its latest strategy note on IT sector said the sequential degrowth of 0.8 per cent, 0.8 per cent and 3.5 per cent for TCS, Wipro and Infosys, reflects serious macro headwinds. Rather than valuations that look attractive post the recent correction, the brokerage said it would closely track US bond yields for any further guidance. For now, it suggested selling IT stocks on any rebound.
Ahead of HCL Tech's Q4 results, Emkay Global said IT companies have not reported negative sequential growth rates outside recessions witnessed during the global financial crisis of 2008 or the 2020 pandemic. For IT most companies, Emkay Global said, the 6-8 per cent USD CC annual growth usually entails 1.5-2 per cent QoQ growth for the first half of the fiscal and a more moderate 0-1 per cent QoQ for the second half – seasonally impacted by furloughs and lower man-days. This largely implies that a poor first half will weigh heavily on full fiscal numbers, Emkay noted.
Its IT analyst Dipesh is expecting the prevailing weak trend may persist in Q2, which means that FY26 is mostly a wash-out, with flat revenue growth at best.
"Analysts have downgraded the IT sector’s earnings by 6-8 per cent for FY26, and now expect a flattish-to-modest 1-2 per cent growth. FY27 earnings have seen absolute cuts, though the percentage rise at 6-8 per cent maintains status quo. We believe that most analysts, and perhaps even companies, derive comfort from a bottom-up micro analysis while the more dominant global macro overlay is being paid sub-optimal attention," Emkay Global said.
Emkay said the market seems to be ignoring the second and third order impact of tariff wars on the US economy, the lack of fiscal and monetary Put, and the emergence of bond vigilantes. While the hand of the market can force a President and even the US Fed to pivot, the bond market will remain out of bounds, it said.
During the GFC crisis, the IT index declined 60 per cent from its peak in about nine months, through to March 2009, only to be followed by a furious rally thereafter – recouping all its losses by September 2009. The case during the pandemic was no different.
"From a timing perspective, we would rather focus on US bond yields versus IT sector’s absolute valuations as a guidepost. All the ills of the US economy, self-engineered or otherwise, are symptomatic in the western nation’s high bond yields. These therefore need to stabilize and then decline, for us to turn constructive on the US economy and hence on the IT sector," Emkay said.
Most top-tier IT names are now trading at cash-flow yield of 5-6 per cent, while forward multiples range from 17 times for Wipro to 22 times for TCS, with the others betwixt.
"As most companies eventually payout 80-90 per cent of their retained profits, such valuation levels are tempting albeit always anchored in growth expectations," Emkay Global pointed out.
Emkay Global in its latest strategy note on IT sector said the sequential degrowth of 0.8 per cent, 0.8 per cent and 3.5 per cent for TCS, Wipro and Infosys, reflects serious macro headwinds. Rather than valuations that look attractive post the recent correction, the brokerage said it would closely track US bond yields for any further guidance. For now, it suggested selling IT stocks on any rebound.
Ahead of HCL Tech's Q4 results, Emkay Global said IT companies have not reported negative sequential growth rates outside recessions witnessed during the global financial crisis of 2008 or the 2020 pandemic. For IT most companies, Emkay Global said, the 6-8 per cent USD CC annual growth usually entails 1.5-2 per cent QoQ growth for the first half of the fiscal and a more moderate 0-1 per cent QoQ for the second half – seasonally impacted by furloughs and lower man-days. This largely implies that a poor first half will weigh heavily on full fiscal numbers, Emkay noted.
Its IT analyst Dipesh is expecting the prevailing weak trend may persist in Q2, which means that FY26 is mostly a wash-out, with flat revenue growth at best.
"Analysts have downgraded the IT sector’s earnings by 6-8 per cent for FY26, and now expect a flattish-to-modest 1-2 per cent growth. FY27 earnings have seen absolute cuts, though the percentage rise at 6-8 per cent maintains status quo. We believe that most analysts, and perhaps even companies, derive comfort from a bottom-up micro analysis while the more dominant global macro overlay is being paid sub-optimal attention," Emkay Global said.
Emkay said the market seems to be ignoring the second and third order impact of tariff wars on the US economy, the lack of fiscal and monetary Put, and the emergence of bond vigilantes. While the hand of the market can force a President and even the US Fed to pivot, the bond market will remain out of bounds, it said.
During the GFC crisis, the IT index declined 60 per cent from its peak in about nine months, through to March 2009, only to be followed by a furious rally thereafter – recouping all its losses by September 2009. The case during the pandemic was no different.
"From a timing perspective, we would rather focus on US bond yields versus IT sector’s absolute valuations as a guidepost. All the ills of the US economy, self-engineered or otherwise, are symptomatic in the western nation’s high bond yields. These therefore need to stabilize and then decline, for us to turn constructive on the US economy and hence on the IT sector," Emkay said.
Most top-tier IT names are now trading at cash-flow yield of 5-6 per cent, while forward multiples range from 17 times for Wipro to 22 times for TCS, with the others betwixt.
"As most companies eventually payout 80-90 per cent of their retained profits, such valuation levels are tempting albeit always anchored in growth expectations," Emkay Global pointed out.