IT companies likely to report a muted quarter again

New Delhi: Subpar growth should persist in Q4 for IT companies as muted demand trends continue on account of weak discretionary spending and cautious behaviour by clients, amid uncertain macros, Emkay Global Financial Services said.

Margins should remain steady despite weak revenue growth, as companies optimise costs and tighten discretionary spending. The expectations of slower and shallower rate cuts may delay recovery for IT companies, the brokerage said.

IT companies should report a muted quarter again as clients continue to restrict discretionary spending, coupled with the usual seasonal weakness. Some sequential improvement should be aided by the reversal of furloughs. Mid-caps are again expected to outperform; we expect them to report sequential growth of 1-5 per cent compared to -2 per cent to +2 per cent (USD growth) for large-caps, the brokerage said.

4QFY24 will likely see a continuation of recent soft demand trends for IT services companies, JM Financial Institutional Securities said.

Quarterly guidance by global peers already points to a weak start to the year. Accenture’s commentary alluded to further tightening of IT budgets from January. Furloughs likely spilled over to Q4, a sign of incremental budget squeeze, the brokerage said.

TCS, aided by the BSNL deal ramp, will likely lead the growth. Mid-cap under coverage will do relatively better.

NIFTY IT index has given all its gains year to date, cushioning the downside. But expectations are still not low enough to allow for positive surprises. A weaker-than-expected guidance could change that. That would be a good entry point, the brokerage said.