Dalal Street analysts have a mixed outlook for the fourth-quarter information technology (IT) industry. Whereas HDFC Securities predicts the sector's growth would bottom out in Q4FY24 and gradually rebound in FY25, brokerage Nirmal Bang Securities feels that upcoming earnings will not have a significant upside. Tata Consultancy Services and Infosys, the country's two IT giants by market capitalization, are scheduled to report their March quarter results on April 12 and 18, respectively.

According to HDFC Securities, growth divergence within the sector will persist, and forecast for FY25 is likely to reflect stronger second-half performance. According to the brokerage, TCS's adjusted profit after tax might increase by 6.6% year on year and 3.1% quarter on quarter in Q4FY24. On the other hand, the IT major may see a 3.5% YoY and 1% QoQ gain in net sales.

Also, as per HDFC Securities, Infosys' adjusted PAT may fall by 0.90% YoY and 0.60% QoQ in the quarter ending March 2024. On the other side, it predicted a 3.5% YoY and 1% QoQ increase in net sales.

"Even if growth has bottomed out, value limits major upside potential in the near term. According to HDFC Securities, IT sector values are at 25 times, which is 10% higher than the 5-year normal (23x) and 35% higher than the 10-year average (18.5x), ahead of the US election instability.

In FY24, the Nifty IT index underperformed the Nifty50 index (up 29%), rallying only 22%. Persistent Systems' shares rose the greatest, 73%, in the preceding fiscal year.

It was followed by L&T Technology Services (62% increase), Coforge (44% increase), HCL Technologies (42% increase), Mphasis (33% increase), Wipro (31% increase), TCS (21% increase), Tech Mahindra (13% increase), and Infosys (5% increase).

According to Nuvama Institutional Equities, Q4FY24 is predicted to be a modest quarter with muted growth, although in line with expectations. Revenue growth is expected to range between -1.5% and 4.5%, slowed by a gradual reversal of furloughs and weaker discretionary tech spending. Once again, quality Tier 2 companies will outperform their larger counterparts. Deal flow will remain stable, indicating a recovery in the coming quarters."

It also expects most companies to guide to a somewhat better FY25 than FY24, with the focus now shifting to deal execution in the last three quarters as the global economic environment improves steadily. "We stay positive on the sector, with medium to long-term growth potential outweighing near-term headwinds," the report added.

The brokerage shared its outlook on HCL Technologies, stating that sales will climb 0.3% QoQ in constant currency terms and 0.7% QoQ in dollar terms, driven by services (2.4% QoQ) and P&P (-15% QoQ due to seasonality). The Verizon acquisition and the reversal of furloughs will drive service growth. "The EBIT margin will fall 190 basis points quarter on quarter due to a seasonal margin dip in P&P. We expect HCLT to provide FY25 revenue growth (4-6% CC YoY growth in services) and margin guidance (18-19%). Nuvama also forecasted 7.3% YoY rise in CC revenues and 1.8% YoY growth in profit after tax for HCL Technologies.

On the other hand, it estimates Infosys' EBIT margin will fall almost 30 basis points quarter on quarter due to a one-month wage hike, some furloughs, and a revenue reduction. "We expect consistent deal wins and conservative assessment on the demand environment. We expect Infosys to forecast for 3-5% CC YoY revenue growth and margins in the 20-22% range for FY25," Nuvama said, adding that it remains optimistic about Coforge, Persistent, Infosys, TCS, HCL Tech, and LTIMindtree.