Mid-tier IT firms to outshine large peers in near-term

Bengaluru, 4 April: Mid-tier IT firms are likely to outperform their large peers with companies focussing on the non-discretionary segment performing better than those firms with large revenue contribution from discretionary segment.

In a report, JPMorgan said that an outperformance of midcaps over other large-scale IT firms is likely to happen in the near-term, while ERPs (Enterprise Resource Planning solutions) likely to surpass traditional IT companies.

"In a tactical move, portfolios focusing on non-discretionary sectors could outshine those with discretionary holdings," the brokerage firm said in a report.

JPMorgan has turned bullish on select information technology stocks and has upgraded Persistent Systems, LTIMindtree and KPIT Technologies. It has also taken an 'overweight' stance on Infosys and L&T Technology.

On the issue of demand environment, JPMorgan said it has remained stagnant since reaching a bottom in the second half of 2023, with no noticeable improvement expected in either in January-March period of FY24 or April-June period of FY25.

“We feel that this subdued demand is likely to lead to poor Q4 exit rates and could dampen the FY25 guidance across IT companies. According to the firm, the negative price action seen in Nifty IT index (down 1.3 percent year-to-date) suggests that these expectations are factored in,” the report said.

Investors are keening looking at management commentary on the overall demand environment and revenue guidance for FY25. Market leader Tata Consultancy Services (TCS) will kick-start the earnings season for the fourth quarter on April 12, while Infosys will declare its Q4 earnings on April 18. HCL Tech is scheduled to release its results on April 26.

Earlier, Accenture has reduced its revenue growth forecasts for 2024 to 1-3 per cent from earlier projections of 2-5 per cent.

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