IT Q1 Results Preview - Macro Challenges Persist, Tier-II To Outperform Tier-I: KRChoksey

"BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy..KRChoksey Research Report.The upcoming Q1 FY24 is expected to be impacted by softness in discretionary spending and client delays in decision-making, which may adversely affect revenue growth. Factors such as project ramp-down and lower conversion to total contract value are likely to have a short-term impact on growth. However, management's commentary indicates a positive outlook, with a strong project pipeline in place. Nonetheless, the conversion process is taking slightly longer, resulting in potentially muted near-term figures for tier-I companies. On the other hand, tier-II companies are expected to sustain their growth momentum due to a lower base and their ability to provide differentiated services. In this quarter, we anticipate a rebound in spending for sectors such as banking, financial services and insurance, manufacturing, and hi-tech when compared to the previous quarter, Q4 FY23. Furthermore, we expect the rebound to continue in the subsequent quarters, specifically from the H2 FY24. This growth momentum will be driven by the resurgence of discretionary spending and an acceleration in the adoption of cloud services and generative artificial intelligence within the industry..Sector Valuation:Nifty IT has underperformed compared to the Nifty 50 index owing to the worsening macroeconomic scenarios and seasonal furloughs. Companies that provide IT services are noticing a move towards cost-optimisation deals and an increase in vendor consolidation transactions in the works. We prefer tier-II (mid-cap) players over their tier-I (large-cap) counterparts, given the former’s attractive valuations, increased traction in vendor consolidation, and diversified client portfolios. The tier-II companies remain best positioned to benefit from long-term structural tailwinds in the sector and should see a relative pick-up in growth, aided by clients’ focus on cost optimisation and efficiencies. HCL Technologies Ltd. is one of the key beneficiaries of Cloud adoption at scale, given its expertise in infrastructure management services and we expect HCL Tech to deliver strong growth, backed by strong deal wins. Notwithstanding some short-term discomfort, we continue to be optimistic about the IT services sector, which is underpinned by a healthy medium- to long-term demand outlook..Click on the attachment to read the full report:.IT Services Q1 Results Preview - Will ‘Slower For Longer’ Fears Be Validated? Nirmal Bang.DISCLAIMERThis report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime..Users have no license to copy, modify, or distribute the content without permission of the Original Owner."

IT Q1 Results Preview - Macro Challenges Persist, Tier-II To Outperform Tier-I: KRChoksey

The tier-II companies remain best positioned to benefit from long-term structural tailwinds.

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IT Q1 Results Preview - Macro Challenges Persist, Tier-II To Outperform Tier-I: KRChoksey

The tier-II companies remain best positioned to benefit from long-term structural tailwinds.

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