Sep quarter may make barely a ripple for IT

If you are looking for fireworks in the September quarter earnings (Q2FY24), then don't look at the information technology (IT) sector. The narrative for the second quarter (Q2) has not changed much versus the recent quarters. Technology companies are poised to clock muted revenue growth despite a robust deal pipeline. Slowerthan-anticipated ramp-up or conversions of existing deals would cap a sharp revival in revenues in the near future.

- Harsha Jethmalani

Mid-cap IT stocks are expected to continue to beat large-caps in revenue growth, though the tepid demand scenario has reduced this differential lately. Analysts from Nomura Financial Advisory and Securities (India) expect large caps to report quarter-on-quarter constant currency revenue growth ranging from-1% to +2%. The brokerage expects midcaps to report growth ranging from 0.7% to 3.3%.

The margin performance is expected to be a mixed bag in the second quarter. Ebit margin movement could vary widely across companies sequentially depending on their wage hike cycles. Ebit is earnings before interest and tax; a measure of profitability.

"Variable compensation levels will influence quarterly margins across companies. For example, we expect Tech Mahindra Ltd to increase variable compensation payout for senior leadership, which will impact margins. We do not expect any change in Infosys's variable compensation," said analysts at Kotak Institutional Equities in a 29 September report.