BNP Paribas watches Indian IT companies’ in-line results and reassuring management commentary may not be enough to revive investor interest, it said in a note on the sector’s earnings expectations. However, according to brokerages, another quarter without any earnings estimates downgrade should be significant to start viewing the sector favorably.
BNP expects Indian IT companies to post seasonal revenue growth in the December quarter. “We expect large caps’ revenues to grow 0.4-2.6% QQ CC and margins QQ to ease as supply side pressure eases,” the note said.
The brokerage expects largecaps to outperform. Its top IT stock picks are Tata Consultancy Services (TCS) and Infosys for their digital capabilities and performance track record.
Following the merger of Mindtree with LTI, it has come out with its estimates and target price for the merged entity, LTIM, with a buy rating and LTIM to benefit from revenue and cost synergies.
“We expect USD revenue growth of 1.7-2.8% QQ for MPHL covered mid-caps with higher margins. We expect INFO and HCLT to maintain their FY23 CC revenue growth guidance of 15-16% and 13.5-14.5%, respectively, and WPRO to guide for 4QFY23 qq CC revenue growth of 0.5-2.5%. While it is too early to know about the IT budget for 2023, any pointers should be helpful.”
The brokerage has a buy rating it stock Infosys with a target price of Rs. 1,760, LTIMIndustry (TP: 4,975), TCS (TP: 3,860), HCL Technologies (TP: 1,170), Reddington (TP: 210), Tech Mahindra (TP: 1,140) Mphasis (TP: 2,220). Meanwhile, it has suggested reduce stance on Wipro. 345) and Persistent Systems (TP: 2,930).
Potential growth drivers for BNP Paribas’ top picks and the overall bullish call in the sector will be big deal wins; favorable Fed interest rate policy; Tech spending by large global enterprises.
However, a sharper than expected deceleration in global economic activity and GDP growth; Inability to fully offset current cost inflation through aggressive fresher hiring, INR depreciation and price hike; Margins could be hit harder than expected by softening demand for IT services, which could be a downside risk, the note said.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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