
Seasonal furloughs are expected to weigh on the information technology sector’s growth for the third quarter ended December 2024 (Q3FY25). However, beyond seasonality, market watchers believe macro uncertainty is gradually easing, and they expect the outlook for technology to improve in the calendar year 2025. Brokerage Motilal Oswal Financial Services (MOFSL) sees clear signs of acceleration. It expects Tier II companies to continue to outpace Tier I firms in growth during the quarter.
Tata Consultancy Services (TCS), which is slated to announce its results on January 9 (Thursday), may post 6.2% YoY and 0.2% QoQ growth in net sales in Q3FY25, according to HDFC Securities. On the other hand, the brokerage believes that the IT major may post a 2.1% YoY and 1% QoQ rise in adjusted profit after tax (APAT).
In the case of Infosys, HDFC Securities sees a 6.5% YoY and 0.9% QoQ rise in net sales and 11% YoY and 4.3% QoQ growth in APAT. Infosys will announce its results on January 16.
In 2024, the information technology sector outpaced the benchmark equity index. The BSE IT index rallied nearly 20% in the previous calendar year, while the BSE Sensex gained 8.17%. Shares of Tata Consultancy Services and Infosys advanced around 8% and 22%, respectively, during the year.
While sharing its view on the sector, MOFSL said in a report said, “Recovery appears to be expanding beyond US BFSI — which continues to strengthen — into additional industry verticals such as HiTech, which is recovering ahead of schedule. The most important catalyst for the sector now would come after 3QFY25, when client budgets for CY25 would be finalised and the magnitude of change in client behaviour would become clearer,” the brokerage said.
Among Tier I players, MOFSL prefers LTIM (LTIMindtree) because it believes the company’s vertical exposures in BFSI and Hi-tech, as well as its service line exposures in data, ERP, and modernization, position it well for a recovery in client spending in FY26 and FY27. Among Tier II players, MOFSL’s top pick is Coforge.
“Coforge’s strong offerings in BFS and insurance should enable it to participate in the demand recovery, and a strong TCV also indicates a robust near-term growth outlook. We believe Coforge’s organic business is in great shape and early cross-selling initiatives between Coforge and Cigniti indicate that Coforge could engineer a growth turnaround at Cigniti earlier than expected,” the brokerage said.
Shares of Coforge gained 54% to Rs 9,660.65 on December 31, 2024 from Rs 6,275.30 on December 29, 2023. On the other hand, Cigniti Technologies gained 63% to Rs 1,743.50 in the last calendar year.
According to HDFC Securities, within the Tier 1 IT, HCL Technologies is expected to lead growth (and margin improvement), supported by software business seasonality in Q3. HCL Technologies may report 5.8% YoY and 4.3% QoQ growth in net sales. On the other hand, Wipro may see 0.5% YoY and 0% QoQ growth in top line.
“TCS’ growth will continue to be led by the regional markets segment, evident in recent large deal wins. Several deal wins in SAP S/4HANA by Infosys and Wipro reflect continued growth momentum in the horizontal. Overall, in Q3, the coverage universe is expected to post 4% YoY growth in dollar terms and PAT growth of 7% YoY,” HDFC Securities said.
Within mid-tier IT, the brokerage thinks Persistent Systems and L&T Tech to lead the sequential growth in Q3. HDFC Securities has ‘Add’ rating on TCS (Target price: Rs 4,545), Infosys (Rs 2,000), HCL Technologies (Rs 1,960), LTIM (Rs 6,365) and Persistent Systems (Rs 6,825).
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