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Informist, Friday, Apr. 4, 2025

MUMBAI – Information technology stocks are expected to remain subdued in the near-term due to expectations of weak March quarter earnings, "unexciting" management commentary, and subdued guidance for 2025-26 (Apr-Mar). A deteriorating macroeconomic environment in the US is seen weighing on March quarter earnings of Indian companies and their guidance for FY26, analysts said. Investors will likely adopt a wait-and-watch approach till the announcement of the March quarter earnings, which sector bellwether Tata Consultancy Services will kick off on Thursday. 

After the recent correction in IT stocks, investors will wait for management commentary on discretionary spending trends and growth outlook for FY26 before buying these stocks, Ambrish Shah, an analyst covering the sector at Systematix Institutional Equities, said.

IT stocks have corrected sharply after US President Donald Trump imposed tariffs in the range of 10-50% on imports from its trade partners and specific reciprocal tariffs on multiple countries, including a 26% tariff on imports from India. The recent correction was more of a global recessionary scenario playing out with Trump's tariff measures, Amit Chandra, an analyst covering the sector at HDFC Securities said. The growing uncertainty regarding the US economy is seen affecting revenue growth of most IT companies, Chandra said. He also expects this to lead to a slowdown in the deal pipeline to deal conversion and conversion of existing deals to revenue.

Mid-cap IT stocks are expected to remain weak in the near-term, as their valuations are still on the higher side compared to the 10-year average, Chandra said. On the other hand, the large-caps are mostly placed well as their multiples are in line with the 10-year average, he added.

The Nifty IT index Thursday closed more than 4% lower after the US tariff announcement. Over the week, the IT index fell over 9% with all constituents ending in the red, marking sharp declines in the range of 5.0-18.5%. Shares of mid-cap IT companies Coforge and Persistent Systems crashed 16% and 18.5% each over the week. So far this year, the IT index has fallen close to 23% and over 20% since the swearing-in of Trump as US president on Jan. 20.

Following the tariff announcements, Nomura Global Markets Research has cut its target price for several domestic IT companies by 3-21%, as it expects revenue growth to be slower due to uncertainty around US tariffs. The brokerage also trimmed its revenue growth estimate for the large-cap IT companies for FY26 by 230-350 basis points. TCS is expected to report a 1.2% sequential decline in revenue in dollar terms for the March quarter due to seasonality and the absence of the Bharat Sanchar Nigam Ltd. deal, IDBI Capital said in a report Friday. Operating margin of TCS is seen improving 33 bps sequentially on account of operational efficiencies, the brokerage said.

However, analysts remain positive on the long-term growth prospects of the sector. Increased customer spending on digital transformation, cloud computing, and artificial intelligence is expected to support the IT services sector in the long-term, Fitch Ratings said in a report Friday. The rating agency expects demand in these areas to persist as these projects could enhance efficiency, reduce costs and improve operational resilience.

TOP HEADLINES

* Netweb Tech gets PLI incentive of INR 59.40 mln under IT Hardware scheme
* Nomura cuts Indian IT cos' target price, lowers growth outlook for large-caps
* IPO Alert: ESDS Software refiles DRHP for up to INR-6-bln fresh issue
* LTIMindtree to modernise US-based PHINIA Inc's digital infrastructure
* Happiest Minds launches AI-based solution Investment Companion
* Newgen Software US arm bags two orders of $1.68 million
* Newgen Software US arm bags $1.27-million order, to be executed within 3 yrs
* LTIMindtree expands pact with Google Cloud to drive business transformation
* Newgen Software bags INR-353-bln order for centralised trade fin solution
* Rohan Verma to quit as CE Info Systems CEO Mon; Rakesh Verma to replace him
* Coforge gets INR 1.85-bln tax demand from Income Tax department
* NCLAT reduces CCI's penalty against Google to INR 2.17 bln from INR 9.36 bln

Following are the resistance and support levels for the stocks for next week as per calculations by Informist based on their prices on the National Stock Exchange:

End

Reported by Arya S. Biju

Edited by Ashish Shirke

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