NEW DELHI: Buoyed by large deals and digital growth, information technology (IT) companies are expected to deliver another superb quarter for the January-March period, project analysts. However, margins could come under pressure due to increased employee cost.
IT companies are usually the first to report quarterly numbers. TCS will come out with its March quarter numbers on April 12, followed by Infosys on April 14, and Wipro and Mindtree on April 15.
“We expect another robust quarter of growth for IT services companies in a seasonally weak period, backed by large deal rampups and continued spend on digital programs. Deal signings will be robust, and the pipeline will stay healthy,” said Kawaljeet Saluja and Sathishkumar S of Kotak Securities.
They expect Infosys to give a guidance of 12-14 per cent revenue growth for FY22 and HCL Tech 10-12 per cent.
Analysts expect tier-I IT companies to report 2.2-3.9 per cent sequential growth in Q4 earnings while the tier-II companies could do 2.5-4.5 per cent in constant currency terms.
Rishit Parikh of Nomura said the deal pipeline of IT companies has been robust, though the ticket size could reflect some signs of moderation. Deal pipeline has remained healthy across companies and is led by the demand in areas of cost takeouts and digital transformation including infra/apps modernisation, customer experience, cyber-security, and vendor consolidation.
For TCS, Q4 revenue growth will be driven by a rampup in deals won in Q3 i.e. Postbank and Prudential – both combined will add 2 per cent incremental growth. For Infosys, it would be RollsRoyce and multiple $50-100 million deals won during the third quarter, and for Wipro Verifone.
8 stocks that may deliver solid returns in the next few weeks
Money-making ideas
While the rapid surge in Covid-19 cases, the resultant stricter restrictions and risks from rising bond yields have heightened volatility in the domestic stock market, analysts say the focus going forward is going to be more and more stock specific. That said, here are a few stocks that analysts say hold the promise of making good money for investors in the near to short term. Check them out.
India Cement | BUY| Price Target: Rs 181
India Cement has formed a higher bottom formation post short-term price correction. Currently, the stock is consolidating between Rs 162 to Rs 170. The stock has been consistently taking support near the 50-day SMA and the texture of the charts suggest trading above the same then uptrend wave likely to continue in the short run. Hence, if the stock succeeded to trade above Rs 162, we can expect a one more uptrend rally up to Rs 181. Stop loss should be at Rs 162.
(Analyst: Shrikant Chouhan, EVP – Equity Technical Research at Kotak Securities)
SBI | BUY | Price Target: Rs 395
After a strong uptrend rally the stock witnessed short term correction. However, the medium term texture of the stock is still positive. SBI took the support near an important retracement level and is currently trading near 50 day SMA with strong candlestick formation. Daily and weekly structure suggest reversal wave will continue in the near term if it manages to trade above Rs 355, which should be stop loss. Target should be at Rs 395.
(Analyst: Shrikant Chouhan, EVP – Equity Technical Research at Kotak Securities)
HCL Tech | BUY | Price Target: Rs 1,075, Stop Loss: Rs 965
On the weekly charts, after a long time stock closed above Rs 980 resistance which is broadly positive. On daily charts stock has formed higher bottom formation near 50 Day SMA which supports short term uptrend. In addition, on weekly charts, positive Parabolic SAR series along with bullish candle on weekly charts also suggest further uptrend in the near future. Rs 965 should act as a strong support and stop loss for the stock and sustain above the same can take it to Rs 1,075.
(Analyst: Sameet Chavan, Chief Analyst-Technical & Derivatives, Angel Broking)
Happiest Minds | Buy | Price Target: Rs 655
After five months of lull, volumes started picking up rapidly in February and the stock surged more than 70% to grab the eyeballs. This was followed by a brief phase of consolidation which seems to be over now. On Thursday, the stock prices finally managed to blow out as we witnessed a 10% rally with sizable volumes. The recent price chart displays a ‘Bullish Flag’ breakout in this stock. We recommend going long around Rs 580 for a target of Rs 655 in coming days. The strict stop loss can be placed at Rs 542.
(Analyst: Sameet Chavan, Chief Analyst-Technical & Derivatives, Angel Broking)
Apart from those, continuing traction in the BFSI/healthcare vertical and a recovery in retail/manufacturing verticals will help HCL Tech besides a 100 bps contribution from DWS acquisitions and Cognizant’s buyout of Magenic and Linium, said Nomura.
One cause of concern could be the expected sequential drop in margins due to a rise in expenses. However, they are likely to expand year on year. Large companies are better positioned to weather the decline in margins, said analysts.
“Barring Coforge and Firstsource, all other companies are expected to report a decline in Ebit margins on a sequential basis due to salary hikes, promotions, bonuses and a stronger rupee, partly negated by offshoring, revenue momentum and continued WFH savings,” said Dipesh Mehta and Monit Vyas of Emkay Global.
Commentators at Ambit Capital said they are cautious on margins due to supply-side pressure. Besides, Q4 results could show a partial reversal of one-off savings.
“We remain below consensus on margins and see 130 bps erosion for tier-1 IT over FY21-23. With valuations at 26 times one-year forward (32 per cent premium to 3-year average), we remain selective and prefer stocks offering higher margin of safety on growth/margins/valuations,” said Ashwin Mehta and Vamshi Utterker of Ambit Capital.
Shares of IT companies have been in the spotlight in the last one year, as dependency on technology has increased amid the Covid pandemic. The Nifty IT index has surged 125 per cent since last March. With that, stocks have also become expensive.
