The NSE Nifty IT hit a lifetime high of 43,079.70 led by gains in HCL Technologies Ltd., Infosys Ltd., and Tech Mahindra Ltd.
Despite the surge in the sector, brokerage CLSA remains cautious, with the latest analysis pointing to a mixed outlook influenced by potential opportunities coming out of the evolving Nvidia ecosystem.
Nvidia's stellar performance in the second quarter of 2024, with 122% year-on-year revenue growth, has underscored its pivotal role in the AI revolution. Major global players like ServiceNow and SAP have already integrated Nvidia chips into their platforms.
Indian IT giants like HCL Tech, TCS, Infosys, and Wipro have proactively partnered with Nvidia, positioning themselves as key system integrators in this evolving landscape.
Among the Indian IT companies, Persistent Systems stands out in CLSA's analysis, with a significant portion of its revenues derived from the high-tech vertical. CLSA has thus maintained an "outperform" rating on Persistent.
Generative AI hasn't led to the deflationary pressures for business process outsourcing services that many anticipated. Instead, BPO companies are seeing a shift towards outcome-based contracts. Genpact, eClerx, and FirstSource have all raised their growth guidance, highlighting that GenAI is complementing rather than cannibalising their core operations.
Another factor contributing to CLSA's cautious stance is the outlook for the retail sector, which remains the second-largest vertical for Indian IT companies. The overall capex outlook remains stagnant. This stagnation, coupled with weak demand forecasts for the second half of the year, could spell trouble for Indian IT firms heavily reliant on retail, such as Wipro, which draws nearly 19% of its revenues from this vertical.
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