Despite seasonal weakness, Jefferies expects IT firms to deliver 3-3.9% QoQcc in Q3FY22 growth, driven by deal ramp-up. It expects overall margins to see a quarter-on-quarter (QoQ) decline of 20 bps due to supply-side pressures.
Jefferies analysts expect Wipro/HCL Tech to lead QoQCC growth and HCL Tech/Infosys to lead on organic growth. “We expect Wipro’s margins to decline by 70 bps due to the wage hike, with broadly stable margins for other firms,” it said in a note. However, Infosys and Tech Mahindra are Jefferies. top stock picks in IT sector.
For Infosys, it expects margins to see a marginal decline of 20bps QoQ to 23.3% on account of higher supply cost. Jefferies expects Infosys to upgrade its FY22 growth guidance and focus should be on demand outlook, client budget and hiring/attrition.
For Tech Mahindra, the brokerage expects revenue growth of 3.8% QoQcc. Despite the supply side pressure, it expects Tech Mahindra to maintain a steady margin at 15.1% (-10bps QoQ). The focus should be on the communication vertical, 5G, margin outlook, deal win and hiring/attrition outlook.
“We expect overall revenue growth for the top-5 IT firms to experience a seasonal slowdown but remain healthy at 3.5% QoQcc. We expect US$ revenue growth to moderate at 2.7% QoQ due to the 75-100bps cross-currency headwind. We anticipate overall margins to decline slightly to 21.7% (-20bps QoQ), with the impact of cost efficiencies and INR depreciation from increment/supply side pressures,” the note added.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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