IT spending: IT spend in US likely to remain resilient, large-caps like TCS, Infy & HCL safer bets
Though Indian IT companies have reported strong revenue growth in the June quarter, with most also maintaining or increasing their guidance, analysts remain cautious about the sector because of the concerns over a slowdown in the US, the biggest market.
The Nifty IT index has declined 23% so far this year, compared with a 1% rise in the main Nifty50 index, due to worries about slowing revenue growth, margin woes and elevated valuations of the companies.
“We believe the macro slowdown poses a risk that is likely to see a cut in legacy spending, as historically we have seen strong correction between customers’ revenue growth and technology spending,” said Vikas Ahuja, analyst, Antique Stockbroking. “Large companies such as TCS, and are safer bets to play the current volatility, while we suggest adding quality midcaps such as , , and LT Infotech on correction.”
There has been a significant underperformance of the IT stocks in recent months even though the earnings growth of the sector is currently in line with long-term averages, and the guidance by the IT companies is generally buoyant. Stock prices of
, , , L&T Infotech, Mindtree and , among others, have fallen between 25% and 40% so far in 2022. The one-year forward PE multiple of most of the companies are close to their historical averages.
