Nomura has expressed optimism over the performance of the Indian information technology sector, expecting it to recover from FY26.
What Happened: The international brokerage forecasted that the June quarter will see the revenue growth in the Indian IT services sector bottoming out. The firm expects potential revenue acceleration from FY26.
"We believe 1QFY25 will mark the bottom of sluggish revenue growth for the Indian IT services sector. While a strong recovery in discretionary demand may take a few more quarters, it is unlikely to worsen further," Nomura added.
For the period, it expects the strongest revenue of 2.5% quarter-over-quarter growth for Infosys and the weakest at 2% quarter-over-quarter decline from HCL Tech.
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In FY25, the company anticipates sector revenue growth to be driven by cost-cutting initiatives. Although hiring is projected to increase in the latter half of the fiscal year, businesses are likely to implement optimization strategies such as deferring and reducing salary increases to mitigate cost pressures.
Nomura has upgraded Infosys and HCL Tech to "buy" from "neutral" and TCS has been upgraded to "neutral" from "reduce". Wipro was upgraded to “buy” from “reduce” and for Tech Mahindra the firm maintained its “buy” rating. The firm's top pics in the sector are Infosys, Wipro and Tech Mahindra among the large caps.
Among the mid-cap firms, Nomura maintained its “Buy” call for Coforge and Birlasoft. Firstsource Solutions has been upgraded to “buy” from “neutral”.
| Company | Rating (Old) | Rating (New) | Target Price (Old) | Target Price (New) |
|---|---|---|---|---|
| TCS | Reduce | Neutral | 3,250 | 3,800 |
| Infosys | Neutral | Buy | 1,400 | 1,800 |
| HCLT | Neutral | Buy | 1,400 | 1,700 |
| Wipro | Reduce | Buy | 410 | 600 |
| TECHM | Buy | Buy | 1,350 | 1,600 |
| LTIMindtree | Reduce | Reduce | 4,170 | 4,640 |
| Coforge | Buy | Buy | 5,800 | 6,670 |
| Mphasis | Reduce | Reduce | 2,010 | 2,300 |
| Persistent Systems | Neutral | Neutral | 3,400 | 4,100 |
| LTTS | Reduce | Reduce | 3,700 | 4,340 |
| Birlasoft | Buy | Buy | 860 | 910 |
| Firstsource Solutions | Neutral | Buy | 200 | 250 |
| eClerx | Buy | Buy | 2,800 | 3,100 |
The company says that an interest rate cut cycle, likely in the second half of 2024, and a relaxation in decision-making by U.S. corporations following the presidential elections in November 2024 is expected to stimulate demand. The company also anticipates the adoption of artificial intelligence to increase in the next 12-18 months. That is expected to further propel demand in cloud services and data standardisation, Nomura said.
The financial services giant expects the overall revenue growth of large-cap firms to rise from about 3% in FY25 to about 7.7% in FY26.
Price Action: Most of the technology stocks showed positive movement on Tuesday. Here’s a brief look at how they fared:
- Tata Consultancy Services (TCS) saw its share price increase by 0.68% to ₹4,005.25.
- HCL Technologies’ share price was up 1.33%, reaching ₹1,488.45.
- LTIMindtree’s shares climbed 1.44%, trading at ₹5,526.00.
- Tech Mahindra saw an increase of 1.57% in its share price to ₹1,495.25.
- Infosys’ share price rose by 2.46% to ₹1,629.90.
- Wipro’s shares also saw an uptick, gaining 2.83% to trade at ₹542.25.
- The Nifty IT index itself was up by 1.69%, marking it at 37,490.85.
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