The tier 1 IT pack was trading up to 3 per cent higher in Wednesday's trade ahead of Tata Consultancy Services (TCS) quarterly earnings later in the day. Brokerages such as JM Financial said the ongoing results season is likely to be incrementally better than June quarter's but nowhere close to what most players envisaged at year-beginning.
For now, the BSE IT index has managed to rally 16 per cent year-to-date, outperforming Sensex by 700 basis points in 2023 so far.
On Wednesday, TCS was trading 0.43 per cent higher at Rs 3,644.80 as investors keenly awaited the management commentary and a potential share buyback that analysts said could be up to Rs 20,000 crore in size. Infosys Ltd, which is scheduled for earnings on Thursday, added 1.06 per cent to Rs 1,510.80. Wipro Ltd was up 3.21 per cent at Rs 420.70. HCL Technologies Ltd advanced 0.85 per cent to Rs 1,272.20. Tech Mahindra Ltd (TechM) rose 0.80 per cent. HCL Tech is scheduled to reports Q2 results on Thursday, Wipro on October 18 and Tech Mahindra on October 25.
For the year so far, the five IT stocks gained up to 23 per cent.
"The recent surge in IT stock prices can be attributed to the initial anticipation of pick-up in demand. However, after reviewing Accenture's results and engaging in discussions with various IT companies, it has become evident that growth prospects across the IT sector are subdued, indicating that demand is not aligning with earlier expectations," said Arihant Capital in a note. This brokerage prefers TCS among tier I players.
Emkay Global in its preview note said that the gains in IT stocks recently were made on expectations of a recovery in demand. It said while macro uncertainties still persists, resilience of the US economy, deal intake & deal pipeline, and the gradually-abating impact of normalisation of tech spending could drive recovery in growth and support valuations.
For the September quarter, Kotak Institutional Equities expect 0.5-0.8 per cent sequential CC revenue growth rate for Infosys, HCL Technologies and TCS, a decline of 0.6 per cent revenue growth for Wipro and flat revenue for Tech Mahindra.
"We expect a marginal decline in EBIT margin on YoY comparison (except for TechM where the decline will be sharp) as the slowdown in growth rates and cut in discretionary programs, combined with an increase in costs such as travel and back-to-office expenses, hurt. Cost levers are yet to fully kick in. EBIT margin will be influenced by wage revision cycle on a sequential basis. HCL had deferred wage revision for junior levels by a quarter. We have not baked in wage revision for Infosys," Kotak said.
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