Tough demand environment continues for IT services

New Delhi:  An analysis of the latest quarterly results of 24 global companies indicate no material improvement in the demand environment, as macro uncertainties prevail, Emkay Global Financial Services said in a report.

Overall commentary remains broadly in-line with Indian IT companies. For IT services companies, weak discretionary spending, slower decision making, and revenue conversion amid uncertain macro environment, are leading to revenue softness in this quarter as well, with an uncertain recovery timeline.

While select companies did highlight the emergence of green shoots in a few areas, the overall near-term environment remains soft. This implies that a muted growth scenario is likely to persist in the near term, the report said.

Companies are hopeful of recovery throughout CY24, likely leading to H2 being better than H1. Nifty IT has marginally underperformed the broader markets in the last one month due to a likely delay in US rate cuts and hopes of demand recovery shifting to H2CY24.

“We believe valuations for large caps are relatively less demanding, while mid-cap valuations are rich,” the report said.

Commentary on demand from global IT companies has largely remained unchanged over the last couple of quarters, and is in-sync with Indian companies. Guidance from the upcoming calendar year by Accenture, Capgemini, and Cognizant also reflects weakness in the near term, the report said.

Most companies have highlighted that growth will gradually improve over the year as macro environment uncertainty recedes. “Slower-than-expected recovery can pose a risk to the high single-digit growth estimates that consensus/we are building-in for FY25,” the report said.