Nomura Turns Positive on Indian IT Sector, Highlights Infosys and Coforge as Top Picks

Global brokerage firm Nomura has shifted to a positive outlook on the Indian IT sector, citing a stabilization in revenue growth and the anticipated end of the EPS downgrade cycle. Nomura has identified Infosys and Coforge as its top choices in this sector.

Nomura’s report highlights their top picks, which include Infosys, Wipro, and Tech Mahindra among large-cap companies, and Coforge and Birlasoft among mid-cap companies. The firm has upgraded its ratings for several companies: Wipro has been moved from “reduce” to “buy,” Infosys from “neutral” to “buy,” and HCL Technologies from “neutral” to “buy.” Additionally, TCS has been upgraded from “reduce” to “neutral.”

The report also mentions that potential revenue growth from FY26F has made them optimistic about the sector. Nomura has adjusted its earnings estimates for FY25-26F, ranging from a decrease of 3% to an increase of 5% for the companies they cover.

For the upcoming Q1FY25 results, Nomura expects a mixed performance. Among large-cap companies, Infosys is expected to show the strongest revenue growth at 2.5% quarter-on-quarter in constant currency terms, while HCL Tech is expected to show the weakest at -2%. Among mid-cap companies, Persistent is expected to show the strongest revenue growth at 5% quarter-on-quarter in constant currency terms, while LTTS is expected to show the weakest at -2%. Except for TCS, which is affected by salary hikes, and HCL Tech, which is impacted by seasonal factors, Nomura expects margins to remain stable or improve across the board.

Abhishek Bhandari, an analyst at Nomura, commented that the adoption of GenAI is likely to increase in the next 12-18 months, which could boost the demand for cloud services and data standardization.

Nomura had previously turned negative on the Indian IT sector in May 2022 due to an uncertain macroeconomic environment and a declining revenue growth outlook affecting discretionary spending by enterprises.

As of 11:00 am, the Nifty IT Index had risen by 1.01%, with Coforge, Mphasis, and Infosys leading the gains.