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Both indices, <keyword id="19896382" type="General" weightage="20" keywordseo="Sensex" source="keywords">Sensex</keyword> and <keyword id="19896381" type="General" weightage="20" keywordseo="Nifty" source="keywords">Nifty</keyword> closed the day in the green. While Nifty closed at 24,800 points, up by 0.76%, Sensex inched up by 626.91 points to close at 81,343.46 points on 18th July, 2024. LTI Mindtree (up by 3.48%), ONGC (up by 2.99%), Wipro (up by 2.41%), Bajaj Finserv (up by 2.39%) and TCS (up by 2.84%) were amongst the top gainers of the day. On the other hand, Hero Moto Corp (down by 1.49%), Coal India (down by 1.48%), Asian Paints (down by 1.40%), Grasim (down by 1.25%) and Bajaj Auto (down by 0.86%) were amongst the leading laggards. Amongst broad market indices, Nifty next 50 closed in red, down by 1.09%. Nifty smallcap 100 dipped by 1.22%, while smallcap 250 shed 1.11% and smallcap 400 lost 1% during the day. Nifty microcap also closed the day in red, losing 1.04%. Amongst sectoral indices. <keyword id="6354185" type="General" weightage="20" keywordseo="IT" source="Orion">IT</keyword> inched up by 2.22%, while <keyword id="6354777" type="General" weightage="20" keywordseo="Media" source="Orion">media</keyword> was biggest loser, down by 3.57%. Realty, metal and consumer durables also closed the day in red, while FMCG, auto and pharma closed the day in green. Out of the 2,791 stocks traded during the day, 932 advanced while 1,793 declined. 66 stocks were unchanged. Around 145 stocks hit their 52-week high, while 19 stocks also hit their 52-week low prices. 87 stocks hit the upper circuit, or maximum permissible trading price during a single trading session, while 108 stocks remained in the lower circuit, or the lowest permissible trading price during a singular session. <keyword id="6354512" type="General" weightage="20" keywordseo="Infosys" source="Orion">Infosys</keyword>, <keyword id="6370462" type="General" weightage="20" keywordseo="Tata-Communications" source="Orion">Tata Communications</keyword> and <keyword id="186288" type="General" weightage="20" keywordseo="Persistent" source="Orion">Persistent</keyword> Systems also announced their Q1FY25 results during the day. Infosys saw a 7.1% YoY rise in its net profit, taking it to Rs 6,368 crore. The company's revenue from operations also jumped up 3.6% YoY to reach Rs 39,315 crore. On the other hand, Persistent recorded $328.2 Million as revenue for Q1 FY25, witnessing a 16% YoY and 5.6% QoQ growth. As for Tata Communications, the company's Q1 net profit dipped 13% to reach Rs 333 crore. However, its revenue for the quarter was up 18%, at Rs 5,633 crore. <h2> Expert outlook</h2>Osho Krishan, Senior Analyst, Technical &amp; Derivatives, Angel One Ltd noted that the Indian equity market experienced a remarkably positive trading day, with the Nifty50 benchmark index reaching a new milestone of 24,800. Despite initial concerns caused by weak global cues, the market demonstrated resilience and confidence as the day progressed. The latter half of the session saw a strong upward movement, and the Nifty soared to settle at the 24,800 mark, securing a gain of 0.76% "As far as levels are concerned, the 24,500 is now expected to provide strong support, before which some cushioning to upcoming blips could be seen around the 24,650 subzones. On the higher end, it's challenging to anticipate the exact resistance zone, but achieving the milestone of 25,000 is now seen as a significant target for the bulls, especially in the context of the pre-budget rally", he continued. Aditya Gaggar Director of Progressive Shares noted extreme volatility in the morning trade today, as index swung on both sides. "On a sectoral front, media was the top loser by ending the day with a loss of over 3% followed by metal. Recovery was seen in the broader markets as well but not enough to outperform the frontline index as mid and smallcap shed by 0.96% &amp; 1.22% respectively. By engulfing the previous candle, the Index has formed a big green candle which implies a strong comeback of bulls and now the psychological level of 25,000 will be considered as an immediate hurdle while on the lower side, 24,500 will serve as strong support", he highlighted. As Ajit Mishra – SVP, Research, Religare Broking Ltd notes, "Markets have been inching higher as expected, driven by rotational buying in heavyweight stocks. We are now eyeing the new milestone of 25,000 in the Nifty. However, the recent underperformance of the broader indices is tempering the overall buoyancy. Amid these mixed signals, we reiterate our recommendation to focus on stock selection and prefer hedged positions, given the anticipated rise in volatility due to the upcoming Union Budget and ongoing earnings season".

Stock market closing: Sensex climbs over 600 points to close in green, LTIM, ONGC amongst top gainers

<ul><li>In the last month, hopes of US business revival pushed up the Nifty IT index by over 9%.</li><li>While markets see it as an ‘inflection point’, most analysts choose to wait and watch before going for earnings upgrades.</li><li>Margin performance of large companies is impressive but cracks appear in mid-tier, say analysts. </li></ul>Shares of IT services companies have been gaining momentum, with the Nifty IT index rising by 9.7% in the past month. While the sector’s earnings growth dwindled in the third quarter (Q3) of the current financial year (FY24), top tier companies delivered better than expected earnings reading with a healthy margin performance. The top six IT companies reported a -1.7% to 6% constant currency growth sequentially in Q3, and their margins improved due to operational performance. “Margin performance emerged as another positive. That helped arrest earning downgrades for top-4. Market possibly took this as an inflection, spurring sentiments, reflected in 7% up move in Nifty IT year-to-date. We however believe earning upgrades won’t be as forthcoming,” said a report by <keyword id="20489752" type="General" weightage="20" keywordseo="j-m-financial" source="keywords">J M Financial</keyword>. Markets upbeat, but BFSI recovery crucial The market, nevertheless, is upbeat on the sector with the top three players giving double digit returns in the last one month. The Street is betting that the improved outlook on the US macroeconomic situation might lead to spillover gains for the Indian IT majors. A report by <keyword id="20489750" type="General" weightage="20" keywordseo="systematix" source="keywords">Systematix</keyword> ‘Indian IT poised for an inflection’ says that the top three players may see revenue recovery FY25 onwards, boosted by continued deal momentum. “Indian IT companies trading at higher than historical valuations reflect the structural positivity beyond the near-term uncertainties. Hence, the possibility of numbers turning better than the current projections holds the possibility of further rerating,” says Systematix. However, this upbeat sentiment is not shared by all the sector experts. As of the latest earnings report, most companies continued to suffer from slow revenue conversion from deals, furloughs and more. Even if the much anticipated interest rate cuts pan out this year, the US companies’ performance does not offer too much hope of them reinstating their IT budgets, a few insist. J M Financial says that S&amp;P 500 companies’ revenue upgrades have been minimal, and especially low in consumer discretionary, hi-tech and telecom sectors. It reflects continued cost optimization. Moreover, in the banking and financial sector, which is key for the IT companies, there is still pain. “The pick-up in FY25 is highly contingent on banking and retail. Turning to financial results and commentary from large banks, we are not optimistic of a major surge in spend by banks. Hence, our growth forecast for FY25 remains in the range of 6-7%,” said a report by HSBC. <table style="border-width: initial; border-style: none;"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Stock </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">30-day returns </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">TCS </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">10.65% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Infosys </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">12.85% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">HCL Tech </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">13.33% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Wipro </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">9.43% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Coforge </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">7.97% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Mphasis </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">-2.23% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">LTTS </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.95% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">LTIM </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">-8.03% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Persistent </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">17.57% </td></tr></tbody></table>Source: NSE Cracks in the mid-tier If at all there is demand revival, the top four companies like TCS, Infosys, Wipro and HCL Tech are best placed to gain from it. While the top tier rationalized costs, mid-tier companies like LTTS, <keyword id="20083317" type="General" weightage="20" keywordseo="mphasis" source="keywords">Mphasis</keyword> and LTI Mindtree had missed earnings estimates in Q3. “As demand has softened, mid-tier IT services have begun to struggle on profitability. We think this pressure may remain in the short term until demand picks-up meaningfully, which is unlikely, in our view,” said HSBC which added that ‘mid-tier is now showing cracks’. New deal wins were also mixed for mid-tier companies, unlike their larger counterparts where it was robust. Coforge, <keyword id="20489751" type="General" weightage="20" keywordseo="ltim" source="keywords">LTIM</keyword> and Persistent had good deal wins in Q3, Mphasis’ deal win total contract value came in weak at $241 million. Hyperscalers, large cloud service providers, have shown positive results for the quarter. “While that gives hope for better downstream demand, we need to see if that results in net new demand or mere reprioritisation of IT budgets,” said J M Financial. In spite of exuberance in the stock performance, most analysts are choosing to ‘wait and watch’ before they build their expectations of the IT sector's recovery.

IT stocks rally on core market pick up hope but is the sector out of the woods yet

<ul><li>Infosys, TCS, Wipro, LTI Mindtree and TechMahindra were the top gainers on NSE in Friday trade.</li><li>TCS reported better than expected earnings, while Infosys earnings were in-line with expectations.</li><li>Wipro is set to declare its third quarter earnings on Friday evening. </li></ul>Five top tech stocks – Infosys, TCS, Wipro, LTI Mindtree and TechMahindra were the lead gainers on NSE in the Friday morning trade. All the IT stocks picked up after the two leading companies in the sector – TCS and Infosys – declared their earnings onThursday evening. TCS reported 1% sequential revenue growth above expectations of a flat growth. Its EBIT margins however hit a seven-quarter high even as its deal wins remained moderate at $8.1 billion, missing its guidance. But it also signalled a possible bottoming out of stress in the key segment of banking, financial <a href="https://www.businessinsider.in/business/corporates/news/tcs-expects-the-bfsi-needle-to-start-moving-this-quarter/articleshow/106749184.cms">services and insurance (BFSI) segment</a>. “Management (of TCS) alluded to a macro environment similar to last quarter, with the long-term demand environment remaining strong. It called out its BFSI vertical bottoming out – a big read across for the entire sector, in our opinion,” said a report by Nuvama. The tech major surprised the street in a seasonally weak quarter, with an impact of furloughs. “We were expecting a flattish revenue growth in rupee terms while the company reported earnings that came above the expectations. The best thing is despite a seasonally weak quarter with macro-economic headwinds, TCS performed very well on most earnings parameters,” said Prashanth Tapse, senior VP of research at Mehta Equities. Infosys reported a 1% sequential decline in constant currency, which was lower than the 2% decline that the street expected. The Bangalore-based tech major shaved off its FY24 revenue guidance for the second time, to 1.5-2%. Yet, brokerages see positive levers. “Strong order book will result in acceleration in growth beyond FY24 as Infosys expects ramp up of many large deal wins of 9M from later part of 4Q. We continue to believe that Infosys’s FY24 growth lag is transient and will likely bounce back in FY25 unless new major adverse macro events unfold in US/Europe,” says a report by Equirus Securities. Wipro will declare its Q3 earnings on Friday evening. <table style="border-width: initial; border-style: none; table-layout: fixed; width: 468pt;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Stock </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">% change </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">TCS </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">3.72% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Infosys </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">7.14% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Wipro </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">4.34% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">HCL Tech </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2.96% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Tech Mahindra </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">4.59% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">LTI Mindtree </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">3.72% </td></tr></tbody><tbody></tbody><tbody></tbody><tbody></tbody></table>Source: NSE (as of 10:30 am) Lack of bad news is good news The worst is far behind for the IT sector whose fortunes depend on clients from the US and Europe. In terms of new deal wins, companies insist that little has changed in terms of sentiment in spite of the US Fed pausing interest rate hikes. However, the global macroeconomic situation has not deteriorated since the last quarter, which is being taken as a positive sign. “Even though there is no positive message from the management commentary, the market is likely to respond positively to the absence of any bad news. But the upside for TCS and Infy will be limited since it will take time for clarity to emerge on the prospects for the sector in FY25,” said Dr V K Vijayakumar, chief investment strategist at Geojit Financial Services. On Friday morning, the benchmark indices rallied with support from buying in tech stocks. The Nifty IT index went up by 0.7%, while Nifty and Sensex were higher by 0.8% each. <div type="javascript" title="Custom" contenttype="Text"><cdata><![CDATA[ ]]></cdata></div>

Street unaffected by Infy’s guidance cut; lack of bad news charges up tech stocks

Both <keyword id="20204377" type="General" weightage="20" keywordseo="indices" source="keywords">indices</keyword>, <keyword id="19896381" type="General" weightage="100" keywordseo="Nifty" source="keywords">Nifty</keyword> and <keyword id="19896382" type="General" weightage="20" keywordseo="Sensex" source="keywords">Sensex</keyword> opened the day in red. As of 9:30 am, Nifty was down by 0.21%, trading at 24,749.75 while Sensex inched to 81,318.21 points, down by 0.03%. All broad market indices opened in red, except for India VIX, which inched up by 1.08% during early trade. A similar bloodbath was seen in sectoral indices, with the only exception of IT, which inched up by 1.27%. Nifty realty and metal were down by over 1% each during early trade. <keyword id="19906778" type="General" weightage="20" keywordseo="infosys" source="keywords">Infosys</keyword>, Asian Paints, TCS, ITC and HCL Tech took lead during early morning trade, while Hindalco, BPCL, Power Grid, UltraTech Cement and ONGC were amongst the leading laggards. Notably, Infosys declared its Q1FY25 results yesterday, where it saw its net profits jump by 7% on YoY basis to touch Rs 6,368 crore. The company's revenue from operations during the quarter was also up by 3.6% YoY, up to Rs 39,315 crore. Aether India, Bluedart, ICICI Lombard, JSW Steel, Mahindra EPC, Wipro, NAM India and Ultratech are set to declare their Q1FY25 results later in the day. As Aditya Gaggar, Director of Progressive Shares notes, "IT counters-led rally propelled the index to end the session at another record level of 24,801. By engulfing the previous candle, the Index has formed a big green candle which implies a strong comeback of <keyword id="19962351" type="General" weightage="20" keywordseo="bulls" source="keywords">bulls</keyword>. The psychological level of 25,000 will be considered an immediate hurdle while 24,500 will serve as strong support on the lower side". " For the past couple of days/weeks, we have been recommending FMCG and IT (LTIM and TCS) counters, and the index rally was mainly driven by them only which boosted our confidence to remain bullish on both sectors with a buy-on-dips approach for fresh entry (if already invested then hold). Some <keyword id="21299367" type="General" weightage="20" keywordseo="NBFC-stocks" source="keywords">NBFC stocks</keyword> have given a strong breakout namely Bajaj Finserv, Chola Finance, and Shriram Finance", he continued. Shrikant Chouhan, Head Equity Research, Kotak Securities highlights that or trend-following traders, 24,500/80,400 would act as a crucial support zone. "However, 24,700-24,600/81,000-80,700 can serve as immediate support. Above 24,850/81,600, the market may continue its positive momentum towards 24,950-25,000/81,900-82,000. Per him, the strategy should be to buy around support levels and reduce long positions at resistance levels.

Stock market today: Infosys, Asian Paints take lead during early trade, realty tumbles over 1% in morning trade on 19th July

<ul><li>In the fourth quarter of FY23, Indian IT firms experienced a 1% Q-o-Q decline in US dollar revenues, marking the first revenue decline in 11 quarters. </li><li>On an aggregate basis, the consensus revenue estimates for the top clients of IT firms for 2023 and 2024 have remained relatively stable. </li><li>Despite stable revenue estimates, there are ongoing profitability challenges for clients in 2023 and 2024.</li></ul>The decline in revenue in the IT sector during the fourth quarter was primarily attributed to a decrease in revenues from the top-10 clients. Although the overall revenue outlook of these top clients year-to-date (YTD) remains unchanged, there has been a deterioration in profit outlook, indicating that client profitability plays a significant role in IT spending decisions, as per a report by investment banking firm <keyword id="151304" type="General" weightage="80" keywordseo="jefferies" source="Orion">Jefferies</keyword>. Among different industry verticals, the communication, technology, and <keyword id="6356925" type="General" weightage="80" keywordseo="bfsi" source="Orion">BFSI</keyword> (banking, financial services, and insurance) sectors appear to be the most adversely affected. TechM and <keyword id="10862" type="General" weightage="80" keywordseo="wipro" source="Orion">Wipro</keyword> have the weakest demand outlook, while Coforge, Wipro, and LTIM are considered to be at higher risk of experiencing negative surprises. <cmsannotation type="cmsannotation" annotationid="Decline in revenues from top 10 clients concerning" comment="subhead" text="Decline in revenues from top 10 clients concerning">Decline in revenues from top 10 clients concerning</cmsannotation> During the fourth quarter of FY23, Indian IT firms experienced a 1% Q-o-Q decline in US dollar revenues — marking the first revenue decline in 11 quarters. This decline was primarily driven by a 3% Q-o-Q decrease in US dollar revenues from their top-10 clients. Revenues from clients outside the top 10 remained flat Q-o-Q. Among the companies covered in Jefferies analysis, Coforge was the only firm to report revenue growth from its top-10 clients. This decline in revenues from top-10 clients represents the third-largest sequential fall in a decade. Considering that 20-36% of IT firms' revenues come from these clients, it is important to closely examine their outlook. <cmsannotation type="cmsannotation" annotationid="Aggregate revenue estimates for top clients remain unchanged" comment="subhead" text="Aggregate revenue estimates for top clients remain unchanged">Aggregate revenue estimates for top clients remain unchanged</cmsannotation> On an aggregate basis, the consensus revenue estimates for the top clients of IT firms for the calendar years 2023 and 2024 have remained relatively stable. However, there have been downward revisions of 1-5% in revenue estimates for the top clients of TechM and Wipro, while upward revisions of 2-4% have been observed for the top clients of Infosys and Coforge. Among different industry verticals, clients in the technology and communications sectors have experienced more significant revenue cuts in their estimates. On the other hand, clients in the energy and utilities, travel, transportation, and hospitality (TTH), and life sciences sectors have witnessed upward revisions in their revenue estimates. <cmsannotation type="cmsannotation" annotationid="Profitability pressures persist" comment="subhead" text="Profitability pressures persist">Profitability pressures persist</cmsannotation> Despite stable revenue estimates, there are ongoing profitability challenges for clients in 2023 and 2024. The aggregate profit after tax (PAT) margins for the top clients of IT firms have seen downward revisions of 25-40 basis points for 2023 and 2024. Except for <keyword id="141968" type="General" weightage="50" keywordseo="hcl-tech" source="Orion">HCL Tech</keyword>, all firms have experienced cuts in their 2023 PAT margin estimates for their clients, with Infosys, TechM, Wipro, and <keyword id="6357150" type="General" weightage="50" keywordseo="tcs" source="Orion">TCS</keyword> facing the most significant reductions. The energy and utilities, BFSI, life sciences, and communication sectors have particularly encountered considerable margin pressures. <cmsannotation type="cmsannotation" annotationid="Profitability key to IT spending" comment="subhead" text="Profitability key to IT spending">Profitability key to IT spending</cmsannotation> The decline in revenue from top clients in the fourth quarter of 2023, despite unchanged aggregate revenue expectations, highlights the significant role of profitability outlook in determining clients' IT spending in the near future. Among different industry verticals, only the travel &amp; hospitality sector has seen improvements in revenue and profit estimates for 2023. On the other hand, while revenue estimates for top clients in the life sciences, energy and utilities, and retail sectors have been upgraded, their profit estimates have been reduced, which could have an impact on their IT spending outlook. The technology, communications, and BFSI verticals face challenges as top clients in these sectors have experienced cuts in both revenue and profit. <cmsannotation type="cmsannotation" annotationid="Outlook weak for Inosys, TechM, Wipro" comment="subhead" text="Outlook weak for Inosys, TechM, Wipro">Outlook weak for <keyword id="1893295" type="General" weightage="50" keywordseo="inosys" source="Orion">Inosys</keyword>, TechM, Wipro</cmsannotation> The steep reductions in revenue and margin estimates for clients of Infosys, TechM, and Wipro indicate potential pressure on the near-term demand outlook for these companies. With top clients in the communication, tech, and BFSI verticals positioned weakly, Coforge, TechM, Wipro, LTIM, and TCS are more exposed. Taking these factors into account, TechM and Wipro appear to have the weakest growth outlook. However, when comparing the changes in revenue growth expectations between IT firms and their top clients in FY 2024/CY2023 versus FY2023/CY2022, Coforge, Wipro, and LTIM are at a higher risk of negative surprises in FY24 growth.

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Worsening client profitability to impact IT demand says Jefferies

Anagh Pal

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