Anticipate Indian IT Sector Recovery Signals in Q2 Fiscal 2025 Results: JP Morgan Analysts

In the ever-evolving landscape of the Indian IT sector, analysts at J.P. Morgan are closely watching the second-quarter results and commentary from major Indian IT companies for signs of a potential recovery in deal signings for fiscal year 2025 after what they have termed a “washout” year.
IT managed servicesAnkur Rudra and Bhavik Mehta, analysts at J.P. Morgan, expressed their cautious outlook on the Indian IT services sector, noting a lack of a significant uptick in demand during recent checks. In their analysis, they emphasized that the overall setup is not as favorable as the previous quarter.

Throughout the year, IT giants like Infosys, TCS, Wipro, and HCLTech have consistently highlighted the challenges posed by clients, primarily U.S.-based, who have been reducing IT spending and deferring or canceling contracts due to economic growth concerns and apprehensions regarding prolonged higher interest rates.

“Investors have assumed FY24 is a washout and shifted focus to FY25, hoping for a rebound,” stated the analysts, shedding light on why the Nifty IT index has outperformed the blue-chip Nifty 50 over the past three months.

For this quarter’s earnings reports, the spotlight will be on deal signings and the breakdown of new deals versus renewals, crucial for evaluating the growth prospects for fiscal year 2025, according to the analysts.

However, based on recent meetings with industry executives, analysts noted that there was no substantial optimism regarding a demand rebound. While there are glimpses of progress in certain areas, the overall decision-making and deal ramp-ups are progressing at a sluggish pace, Reuters news report said.

In terms of their outlook, the analysts maintain a more negative stance on the sector compared to the broader market. They anticipate high single-digit earnings growth for large-cap IT companies in fiscal 2025, contrary to market expectations of double-digit growth. Similarly, they foresee low double-digit growth for mid-cap companies, while market expectations lean toward mid-teens growth.

Nevertheless, J.P. Morgan upgraded Infosys to a “neutral” rating from “underweight,” highlighting that lower expectations have already been factored in, and Infosys’ substantial large deal wins provide visibility into fiscal 2025.

TCS, Infosys, and HCLTech are set to report their results in the coming week, and market participants are eagerly awaiting these updates to gain deeper insights into the trajectory of the Indian IT sector and its potential for recovery and growth in the upcoming fiscal year. Stay tuned for comprehensive coverage and analysis of these pivotal announcements.