For the past one month, Nifty IT has underperformed Nifty by 5 per cent. Apart from the weak macro environment, the improvement can be attributed to slowdown in revenue growth, reduction in margins, higher consensus expectations and of course, higher stock valuations.
“We believe valuations have contracted materially, but the price paid for higher earnings growth still increased. We strongly recommend investors to deploy Indian IT Services The segmentation should be very slow and gradual as we believe there will be many unknown risks ahead, which may further hinder the assessment,” the note said.
The start of a slowdown is already being seen, driven by a tightening in central bank policy. In mid-caps, it has retained the pecking order: Coforge, MTCL and Persistent Systems. Recommended brokerage in large cap TCSInfosys, HCL Technologies, Wipro, Tech Mahindra.
It has downgraded the share rating of Mphasis from Buy to Ed. Moreover, considering the recent sharp correction over the past month, the brokerage has upgraded its rating on NewGen to Buy.
“The thrust on cost is likely to lead to a reduction in tech budgeting and a reduction in discretionary spending. Macro factors like GDP, PMI, S&P 500 revenue and CEO confidence are getting worse day by day,” ICICI Securities said.
“We expect a ‘J line’ curve in cost items in P&L in FY 2013/FY 24. For example, travel costs, which are 2-3% of revenue, are now down to ~0.5% Going forward, we will also have to take into account the already high inflation, which could push travel costs (and other costs too) higher than pre-Covid levels,” it added. Securities still believe that falling stock prices have yet to fully overcome all constraints on growth and margins.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.