Nomura upgrades Indian IT giants’ ratings
MUMBAI, INDIA — Global brokerage house Nomura has adopted an optimistic stance on the Indian IT sector, driven by the stabilization of revenue growth rates.
This shift marks the end of the sector’s earnings per share (EPS) downgrade cycle.
Nomura’s top picks among large-cap stocks include Infosys, Wipro, and Tech Mahindra, while Coforge and Birlasoft are favored among mid-caps.
Upgrades for major IT firms
Nomura has revised its ratings for several key players in the Indian IT sector.
Wipro has been upgraded to “Buy” from “Reduce,” Infosys to “Buy” from “Neutral,” and HCL Technologies to “Buy” from “Neutral.”
Additionally, Tata Consultancy Services (TCS) has seen its rating improved to “Neutral” from “Reduce.”
Revenue growth projections
The brokerage firm anticipates potential revenue acceleration starting from fiscal year 2026, which has contributed to its positive outlook.
Nomura has adjusted its earnings estimates for FY25-26, ranging from a decrease of 3% to an increase of 5% across its coverage universe.
In its preview for the June quarter (Q1FY25) results, Nomura expects a mixed operating performance.
Among large-cap stocks, Infosys is projected to lead with a revenue growth of 2.5% quarter-on-quarter (QoQ) in constant currency (cc) terms, while HCL Technologies is expected to show the weakest performance with a 2% decline QoQ in cc terms.
For mid-caps, Persistent Systems is anticipated to post the strongest revenue growth at 5% QoQ in cc terms, whereas L&T Technology Services (LTTS) is expected to lag with a 2% decline.
Factors driving bullish outlook
Nomura’s bullish outlook is underpinned by several factors, including the ramp-up of large deals and improved hiring in the latter half of FY25.
The firm expects revenue growth for FY25 to be supported by significant cost-reduction initiatives despite initial transition costs.
Margins are projected to improve by 20 to 110 basis points during FY25-26F for large-cap firms, excluding Tech Mahindra.
Anticipated recovery and growth drivers
The brokerage expects a recovery from sluggish revenue growth in Q1FY25, with improvements anticipated in subsequent quarters. Key drivers include potential interest rate cuts later this year and enhanced corporate decision-making following the U.S. elections in November 2024.
Additionally, the adoption of Generative AI (GenAI) technologies is expected to boost demand for cloud services and data standardization over the next 12-18 months.
Previous market trends
Nomura had previously adopted a negative stance on the IT sector in May 2022 due to an uncertain macroeconomic environment and deteriorating revenue growth prospects.
Since then, the sector has shown resilience, with the index gaining over 25% till now. The index has also advanced almost 25% in the last year and added 5% in 2024 year-to-date.
Nomura’s revised outlook and upgrades signal a renewed confidence in the Indian IT sector’s potential for growth and stability in the coming years.
