IT stocks: Growth recovery not visible yet, says analyst

Ahead of the earnings season, Manik Taneja, Executive Director-IT Services &and Internet at Axis Capital, paints a rather sobering picture of the state of affairs at companies like TCS, Infosys, HCLTech and their peers.Hopes for a significant growth recovery in the Indian information technology (IT) services sector have been repeatedly unmet, and a major spending surge similar to the one seen post the pandemic is unlikely, according to Taneja.

Most stocks are trading below the average price-to-earnings ratio of the last five years, reflecting the subdued future prospects.

“Over the course of the last two-and-a-half to three years, every few months, we tend to get excited about (the next) calendar year.. But almost all the time these hopes have been dashed,” Taneja said.

The latest guidance from Accenture, 2% to 5% growth in the financial year ending 2026, doesn’t inspire confidence. “Do we see a flush in terms of spend similar to what we saw post-COVID? I think the answer to that is no,” Taneja added.From a ratings perspective, Taneja said Infosys and Wipro remain Axis Capital’s preferred large-cap picks in the sector, Mphasis leads among tier-2 companies, and both Firstsource Solutions and Sagility carry a ‘Buy’ rating in the tier-3 space. “We continue to stay very selective in terms of our ratings,” he added.

For the entire interview, watch the accompanying video

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