JPMorgan analysts are closely watching the upcoming second-quarter results and commentary from Indian IT companies for signs of recovery in deal signings in fiscal 2025 after what they term as a “washout” year.
The analysts, Ankur Rudra and Bhavik Mehta, expressed a negative outlook on the sector, citing a lack of a significant increase in demand in recent assessments. They believe that the overall outlook is less optimistic than in the previous quarter. Major IT firms like Infosys, TCS, Wipro, and HCLTech have previously cautioned about clients, many of whom are based in the United States, reducing IT spending, postponing, or even canceling contracts due to slowing economic growth and concerns about sustained higher interest rates.
Investors have shifted their attention to fiscal year 2025, anticipating a rebound after what is expected to be a challenging fiscal year 2024. This shift in focus is reflected in the outperformance of the Nifty IT index compared to the blue-chip Nifty 50 index over the past three months.
For this quarter’s earnings reports, the analysts are particularly interested in deal signings and the breakdown between new deals and renewals, as this will provide insights into the growth prospects for fiscal 2025.
However, despite some positive signs in certain areas, the analysts noted that their recent discussions with industry executives did not reveal significant optimism about a demand rebound. Decision-making and deal ramp-ups continue to be sluggish.
Overall, the analysts maintain a more pessimistic view of the IT sector compared to the broader market. JPMorgan anticipates high single-digit earnings growth for large-cap IT companies in fiscal 2025, while market expectations are for double-digit growth. They also expect lower double-digit growth for mid-cap companies, in contrast to market expectations of mid-teens growth.
In a notable move, JPMorgan upgraded Infosys to a “neutral” rating from “underweight,” citing the fact that lower expectations are already factored in, and the company’s significant deal wins provide visibility into fiscal 2025.
TCS, Infosys, and HCLTech are set to report their results next week.
