Stock market analysts tracking the IT sector believe September could be another quarter on the path to recovery, as growth in sales for IT players is likely to be decent, even as it may disappoint elevated expectations. A few quality tier-2 IT firms may continue to outstrip their larger peers, analysts said adding that deal flow should continue to be stable, which should translate to a recovery in coming quarters.
The most important catalyst for the sector would emerge post the December quarter, when client budgets for Calendar 2025 would be finalised and the magnitude of changes in client behavior would become clearer, analysts said.
"While we expect decent revenue growth in 2Q, expectations are elevated and could lead to short-term disappointment. Healthcare and manufacturing segments would continue to shoulder the growth burden for the industry, in our view. That said, we are not too concerned about variance in revenue growth in 2Q and believe it should not lead to a meaningful change in estimates, sentiments, or valuations (short-term gyrations aside)," MOFSL said.
Revenue growth is likely to be in the positive territory for almost all companies (-0.2 per cent and +3.9 per cent) – alluding to overall improving environment, said Nuvama Institutional Equities. This brokerage said deal flows are likely to hold firm despite a volatile demand environment.
"Margins are likely to be stable sequentially, as supply-side dynamics have reversed with attrition bottoming out. A margin decline shall be seen in companies with wage hikes or specific situations (TCS, Wipro, Coforge, Persistent, Birlasoft and Firstsource). We also anticipate most companies to either upgrade (Infosys and Firstsource) or maintain (HCL, Cyient and LTTS) their FY25 revenue growth guidance," it said.
Kotak Institutional Equities said Accenture’s recent FY2025 growth guidance implies 3 per cent organic growth in a discretionary environment similar to current levels, signaling an improvement from FY2024.
"The guidance is still subpar on absolute basis. Read through for Indian IT—(1) no additional cues on demand and deal wins will be a key enabler of differentiated growth performance. Expect winners and losers. Prefer Infosys among Tier 1," it said.
MOFSL said it prefers HCL Technologies and LTIMindtree Ltd in the tier 1 space due to their strong capabilities in data engineering, ER&D offerings (HCLT) and ERP modernisation, making them well-suited for pre-GenAI spending. Their portfolio mix of discretionary and nondiscretionary businesses should also support growth in the current business environment, MOFSL said.
"For Tier-II players, our top picks are Persistent Systems and Coforge, both poised for strong performance. Persistent Systems benefits from its focus on high-growth sectors like BFS and healthcare. For Coforge, despite uncertainties surrounding the Cigniti integration, we believe it can achieve cost synergies sooner than anticipated, presenting upside risk to our estimates," it said.
Here are share price targets for IT stocks by MOFSL: