IT, Telecom Q3 Results Preview - Seasonally Weak, Recovery Expected: Axis Securities

Axis Securities Report

IT services sector is expected to report muted growth in Q3 FY24 primarily on account of a seasonally weak quarter along with deep furloughs and challenging times in the world’s largest economies.

IT automation in North America and Europe may show delayed spending or face some spending cuts moving forward. We believe many large enterprises will shift their focus on cost optimisations, resulting in higher cost take-out deals, vendor consolidation, and lower discretionary spend.

Verticals such as banking, financial services and insurance, manufacturing, telecom, retail, and hi-tech are expected to be impacted by the slowdown, thereby weakening FY24E growth momentum outlook.

We also believe that the dovish stance taken by the Fed and expected rate cuts in the primary rates may infuse some liquidity in the markets which will encourage strong recovery.

Moreover, deal wins for the quarter are likely to remain steady, aided by strong demand for newer technologies like Generative AI, machine learning, cloud transformation, and digital transformations.

We expect IT services to report revenue growth in the range of -2%-1.0% QoQ in the USD terms. In rupee terms, we expect the sector to deliver QoQ revenue growth of 1%-8%.

However, margins are likely to witness some expansions on account of the ease of supply-side constraints and lower onsite expenses.

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