113679In view of reduced inflation and expenses, will it be right to invest in IT stocks?
IT sector is facing headwinds due to global macro uncertainty and less discretionary spending by companies on IT activities
The results session has begun and its IT majors have opened the innings with the cautious stance. In the 1st quarter of FY24 TCS recorded revenue of Rs 59,381 crore, 13% increase (YOY). However, if we look in constant currency terms the revenue increased just 7%. Its consolidated profit increased 16.84% (YOY) to come at Rs 11,074 crore. Last year in the same period it was Rs 9, 478 crore. On the margins front, EBIT margin declined to 23.2% from 24.49% in the previous quarter. The wage hike is considered a major reason for a lower margin.
Although there are short-term headwinds company remains bullish about long-term prospects as it is emphasizing emerging technologies such as generative AI. The company is focusing on building differentiating capabilities in generative AI. Brokerage house Nuvama stated that deal flow momentum is strong and it expects growth to bounce back in FY25 for the whole sector. The brokerage firm has given a buy rating on the stock with a target price of Rs 4,000. Motilal Oswal also gave buy rating with target price of Rs 3,790.
Another IT major HCL Tech also reported its results but they were disappointing. Its consolidated net profit increased 8% (YoY) to come at Rs 3,534 crore and its consolidated revenue increased 12% (YOY) to come at Rs 26,296 crore but both of these numbers missed street estimates. The company’s EBIT declined 120 basis points (QoQ) to 17%. Weak numbers have posed concerns about company’s ability to meed FY24 guidance numbers. Still brokerages have maintained buy rating. Motilal Oswal gave buy rating with target price of Rs 1,280 while Nuvama Institutional Equities also gave Buy rating with target price of Rs 1,300.
IT sector is facing headwinds due to global macro uncertainty and less discretionary spending by companies on IT activities. However, over the long term, it is expected that the sector will perform well as the pipeline is strong and companies seem to be focusing extensively on Generative AI. Despite this companies across the world are looking to modernize and transition towards Industry 4.0. As other IT firms will declare the results, a better picture will emerge.