IT Sector Set for Growth: Excitement Builds with Strong Q1 Outlook

The first quarter is usually a strong period for the IT sector. Companies are now starting to see the benefits of the big deals they secured last year. Kotak Institutional Equities has also noted a decrease in cuts to discretionary programs.

On Monday, IT stocks were very active, with the market expecting growth in the current quarter. Here’s a closer look at the anticipated performance: A CNBC-TV18 poll suggests that Infosys is expected to lead among large-cap stocks with a 2.5% growth. Even Wipro, which had negative growth over the last five quarters from Q4 FY23 to Q4 FY24, is predicted to see flat or slightly positive growth this quarter. Overall, the market is hopeful for a growth rebound in Q1.

Another positive sign for IT companies is stable guidance. The major concern of guidance cuts seems to be easing, with Accenture reaffirming its guidance and reacting positively. This has influenced Indian IT companies like HCLTech and Infosys to likely maintain their full-year guidance as well.

IT stocks had been underperforming through Q3 and Q4, facing EPS cuts and devaluation. However, they have surged in the last month, turning year-to-date performance positive with a 4%–4.5% increase, most of which happened in June. The IT index, which acts as a barometer, has risen nearly 14%–15% in June alone.

Despite this recent momentum, ICICI Securities warns that the sector is now trading at about 27 times forward multiple, a 32% premium to the Nifty, which is higher than the usual average premium for Nifty IT. This is a cautionary note, but overall, these factors have generated significant excitement in the sector today.