December is historically a weak quarter for IT firms, thanks to higher furloughs. But this time around, macro challenges could also hit demand in many verticals. Analysts largely expect the quarter to be subdued for IT biggies in revenue terms. They see Infosys as their best pick in the IT pack, for now.
The top five IT firms, except for Tech Mahindra (down 4-6 per cent YoY), are seen reporting positive year-on-year growth in profit on single-digit growth in dollar revenues .
Kotak Institutional Equities said revenue growth for the IT sector will moderate to high-single digits to low-teens on an year-on-year (YoY) basis. EBIT margin has bottomed out and will likely improve, albeit moderately, it said.
"TCS and HCL Tech should report relatively better quarter, while TechM and Mphasis should lag. We expect investor focus on growth/decline in IT budgets for CY2023, the state of demand, and the pace of decision making. Infosys, HCL Tech and Mphasis are our top picks," it said.
IDBI Capital expects top five IT firms TCS, Infosys, HCL Technologies, Tech Mahindra and TCS to register dollar growth of 0.7-2.8 per cent QoQ in constant currency (CC) terms aided by 0-10 basis points cross currency tailwinds.
In revenue terms, HCL is seen registering 2.8 per cent QoQ revenue growth in CC terms, led by product revenues. Wipro is expected to report 1.2 per cent QoQ revenue growth in CC terms. IDBI Capital sees Infosys logging a 1 per cent QoQ revenue growth, 0.7 per cent CC growth for TCS and nil sequential CC growth for TechM.
IDBI Capital expects Infosys to revise revenue guidance from 15-16 per cent to 15.5-16.5 per cent. "We expect Wipro to guide 0-2 per cent for Q4FY23," it said while picking Infosys as it preferred largecap pick.
Emkay Global said its pecking order in the tier 1 IT pack is Wipro, followed by Infosys, Tech Mahindra, HCL Tech and TCS.
"We reckon Infosys and HCL Tech will retain their guidance for FY23. Wipro is expected to guide for 1-3 per cent CC QoQ revenue growth for Q4," it said.
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The Nifty IT index rose 6.1 per cent in the December quarter, modestly outperforming Nifty by 20 basis points. This comes after three successive quarters of significant underperformance against the Nifty.
The outperformance of Nifty IT was due to developed market macros holding up better than expected on higher consumption spending, indications of no material deterioration in demand pipeline with US market continuing to be relatively strong and correction of valuation from October 2021 levels.
"The sector has not run up more because of fears of a recession in DMs over the next 6-12 months on account of stronger and swifter monetary tightening by central banks, especially by the US Fed and concerns emerging around demand in FY24, especially amid adverse comments by IT ecosystem players, including those in software and hardware," Nirmal Bang said.
Valuations, it said, still are higher than pre-pandemic levels despite correction from the recent peak, it said "We remain “underweight” on the IT sector and prefer Tier-1 set to Tier-2."
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TCS and HCL Tech should report relatively better quarter, while Tech Mahindra should lag, said Kotak Institutional Equities 
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