Q3 likely to be last weak quarter, expect revenue growth for Indian IT firms from Q4: BNP Paribas

Indian IT companies may see their revenue grow faster starting from the fourth quarter of the current financial year (Q4FY24) due to the better overall economy and the ramp up of large deal wins, according to BNP Paribas. The global financial firm believes Q3FY24 will be the last quarter of weakness for Indian IT companies before revenue growth picks up.

Indian IT firms have been struggling due to macroeconomic headwinds and elevated interest rates in its key markets in the West. Now, BNP Paribas expects a soft landing in 2024, primarily due to benign inflation and falling bond yields. Moreover, it believes resilience in the US economy and the Fed’s indication of three rate cuts in 2024 should spur enterprise confidence.

Also Read: "We think the industry is close to the trough of this cycle. Signs of improvement in the global economy and strong deal wins in recent quarters give us confidence about the revenue growth acceleration that we forecast for FY25," said BNP Paribas. The financial firm prefers large cap firms with strong client relationships, scale to invest in GenAI (Generative AI) and reasonable valuations.

"Our sector top pick is Infosys, and we also like TCS and HCL Tech. We prefer LTIMindtree and for their strong earnings growth potential. We revise our earnings estimates for the firms we cover with the highest increases for Infosys and HCL Tech, as we see them benefitting from discretionary demand recovery in the second half of the next financial year (H2FY25), said BNP Paribas.

Q3 earnings expectations BNP Paribas expects Q3FY24 CC organic revenue growth at 2 per cent to +3.6 per cent for its large cap coverage. Apart from this, it expects mid and small caps to report 0.5 2.7 per cent quarter on quarter (QoQ) dollar organic revenue growth. It also expects some companies to see higher than usual furloughs, impacting revenue which may be partially offset by mega deal ramp ups.

It expects EBIT margin to fall QoQ for most of its coverage companies due to wage hikes, furloughs and one time impacts. "We would look for signs of a demand pick up and updates on the timelines of large deals ramping up in management commentary," said BNP Paribas. Also Read: Livemint tops charts as the fastest growing news website in the world to know more.

Unlock a world of Benefits! From insightful newsletters to real time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away!.