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Published: September 26, 2024
Updated: September 26, 2024

IT Giants Poised for Q2 Results: Analysts Predict Share Price Targets for Key Players

Q2 Outlook for IT Firms: Recovery and Margin Impact

As the second quarter (July-September) results approach, stock market analysts are closely tracking the performance of leading Indian IT firms. The IT sector is expected to show positive revenue growth, albeit potentially below elevated expectations. Analysts predict a gradual recovery, with stable deal flows despite a volatile demand environment. Key players, including TCS, Infosys, HCL Technologies, and Wipro, are in focus as they brace for margin pressures, particularly those impacted by wage hikes or unique circumstances, such as Coforge and Birlasoft.

Revenue Growth and Margins: Key Highlights

Most IT companies are expected to report revenue growth in the range of -0.2% to 3.9%, indicating an overall improving business environment. While growth is expected to remain stable, analysts caution that short-term revenue variance in Q2 might not lead to significant changes in estimates or valuations. Brokerage firms like Nuvama Institutional Equities suggest that margins will largely remain stable, except for companies experiencing wage hikes or sector-specific challenges. For example, firms like TCS, Wipro, and Persistent Systems are likely to face margin declines.

FY25 Revenue Guidance: Upgrades and Stability

Analysts anticipate that some firms, including Infosys and Firstsource, may upgrade their FY25 revenue growth guidance, while others like HCL Technologies, Cyient, and LTIMindtree are expected to maintain their guidance. Accenture’s recent FY25 growth guidance, signalling 3% organic growth, suggests a slightly improved business environment compared to FY24. This, however, remains below absolute expectations.

Top Picks and Investment Preferences

Motilal Oswal Financial Services (MOFSL) prefers HCL Technologies and LTIMindtree in the tier-1 category, citing their strength in data engineering, ERP modernization, and their balanced mix of discretionary and non-discretionary businesses. These factors, along with their strong ER&D offerings, make them well-positioned for pre-GenAI spending. Among tier-2 players, Persistent Systems and Coforge are the top picks, with Persistent Systems benefiting from its focus on high-growth sectors like BFS and healthcare. Coforge, despite challenges with Cigniti integration, could see cost synergies faster than expected, creating an upside risk to estimates.

IT Sector Recovery in Focus

As Q2 results are set to be announced, the Indian IT sector is expected to show steady growth despite short-term margin pressures. Analysts remain cautiously optimistic, anticipating a more pronounced recovery post-Q2, driven by stable deal flows and upcoming client budget finalizations for 2025. With a mix of sector-specific challenges and opportunities, investorsshouldkeepaneyeonbothtier-1andtier-2playersforpotential growth.