During the fourth quarter, the sector will get the benefit of many big deals by IT services companies, speedy deals, proper adoption of digitization and cloud transformation initiative.
Best IT Stocks to Buy: The IT services sector is expected to produce better results in the fourth quarter of FY 2022. During the fourth quarter, companies will get the benefit of many big deals by companies, speedy deals, proper adoption of digitization and cloud transformation initiative. The brokerage house says that the way companies are doing aggressive hiring, it is also showing signs of improving business. At the same time, demand is also strong, especially in North America and Europe. At the same time, the sector will also benefit from the improving macro-economic opportunities around the world. Brokerage houses believe that the growth momentum in the sector will continue and the revenue commentary from the management is expected to remain strong.
Brokerage House Axis Securities
Brokerage house Axis Securities says that IT services companies on QoQ basis can achieve revenue growth in the range of 0.8%-8% in US dollar terms in the fourth quarter. The revenue growth of companies in rupee terms is expected to be 1% to 8% on a quarterly basis. In the fourth quarter, margins of most companies may change in the range of 20bps-260bps. According to the brokerage, 2%-5% growth in the revenue of large cap IT companies can be on a quarterly basis.
Top Pick: Tech Mahindra, Persistent Systems, Mindtree, Cyient , SIS
Brokerage House Emkay Global
Brokerage house Emkay Global says IT companies can show good and sustainable growth in the fourth quarter due to healthy broad-based demand and multiple deals in the pipeline or completed. Right now IT companies are seeing a favorable environment for increasing the prices. However, near-term margins are expected to remain under pressure as pricing improvement is lagging the impact of salary inflation. IT companies have substantially increased their fresher intakes to expand the talent pool of skilled employees. The brokerage house remains positive on the demand outlook and expects revenue growth to remain positive. Sustainable revenue growth momentum, offshore shifts and a gradual increase in realization will support margins.
Brokerage House Motilal Oswal
According to brokerage house Motilal Oswal, the revenue commentary of IT companies is expected to be strong in 4QFY22E. The war and inflation between Russia and Ukraine will not have much effect on this. However, revenue growth in the fourth quarter may remain moderate on a quarterly basis due to a higher base. The revenue growth of Tier I companies is expected to be in the narrow range of 2.8-5.1% QoQ CC. Whereas Tier II companies can show growth in the range of 2.5-8% in revenue. The brokerage says that the demand outlook will remain strong in FY23. Companies will benefit from initiatives in digital and cloud transformation. The hiring trend is also good, indicating that companies are making profits.
Top Picks: TCS, Infosys, HCL Tech, LTTS and ZENT
(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of The Financial Express. Markets are risky, so take expert opinion before investing.)
