IT companies witness weak growth in Q2
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New Delhi: Information technology (IT) services companies have experienced another quarter of weak growth, said JM Financial Institutional Securities.
In the second quarter (Q2) of the year, underlying trends were broadly similar to the previous quarter (1Q).
According to the report, North America remains the epicentre of weakness and there are early signs of softness affecting continental Europe, particularly Germany and France.
BFS and Telecom are most stressed while Manufacturing is holding up. Volume growth is under pressure. This is reflected in headcount decline even on a TTM basis -- a first. Deal wins -- of efficiency types -- were strong. But slower ramps and pressure on core volumes are negating impact on top line, at least in the near term, the report said.
Most players had flagged off a soft 1H. Full-year guidance cuts by Infosys/HCL and a weak 3Q guidance by Wipro have quashed any hopes of a recovery in 2H too. Chances of budget flush in 3Q have waned. Besides, furloughs are likely to be worse. As demand has soured, players have turned their focus inwards, the report added.
The report further said that this is reflected in better-than-expected margin performance across most players and that has a partly cushioned impact on earnings.
“Coforge is our preferred mid-cap pick. We see risks to consensus’ 7-9.5 per cent FY25E USD revenue growth est. for large caps. We remain cautious,” it added.
With inputs from IANS