Indian IT stocks experienced a strong resurgence in June, which continued into July, with Wipro emerging as a standout performer among its peers. The stock's value increased from ₹438 per share on June 4 to ₹538 per share currently, marking a substantial 23% gain in less than a month.
This rally has brought Wipro's stock price close to its February 2024 high of ₹545.90 per share. The IT sector had previously faced challenges due to low demand in key markets, resulting in analyst rating downgrades. However, as demand improves, analysts have become more optimistic about the sector, revising their ratings and target prices accordingly.
The rally in IT stocks was spurred by US-based peer Accenture's robust revenue forecast for the fourth quarter of fiscal 2024. Accenture's earnings are closely watched as a benchmark for Indian IT companies, reflecting global demand for IT services.
Analysts highlight Accenture's heightened activity in GenAI deals as evidence of client willingness to invest when convinced of potential benefits, which holds significant implications for Indian IT firms.
Global brokerage firm CLSA has recently upgraded the rating on Wipro to 'Outperform' from 'Underperform' and also revised its price target higher to ₹607 apiece from ₹431 per share earlier.
The brokerage turns positive on the company as it expects no further cut to its financial year 2025 guidance. The brokerage also expects a revenue growth guidance of 0-2% in constant currency during the second quarter of FY25.
The brokerage highlighted that Wipro surprised positively by announcing a $500 million deal this quarter.
Likewise, Japanese brokerage firm Nomura has also upgraded Wipro's rating to 'buy' from 'reduce' and raised the target price to ₹600 from ₹410. The stock is also the brokerage's top pick in the Indian IT space.
Given the bottoming out of revenue growth rate, it anticipates the end of the earnings per share (EPS) downgrade cycle for the IT sector.
It forecasts a gradual improvement in margins for Indian IT firms, driven by the ramp-up of large deals and increased hiring in the second half of FY25F. It projects that FY25F revenue growth for Indian IT companies will be bolstered by significant cost-reduction initiatives, despite initial transition costs.
The brokerage expects a recovery from sluggish revenue growth in Q1 FY25 and expects improvements in the following quarters. Key drivers include potential interest rate cuts in late CY24 and enhanced corporate decision-making following the US elections in November 2024.
The brokerage said that the potential revenue acceleration from FY26F has made it constructive in the IT space. Nomura has also tweaked its earnings by -3% to +5% for FY25–26F for its IT coverage universe.
Looking ahead to FY26F, it forecasts significant revenue growth for large-cap firms, potentially increasing from around 3% in FY25F to approximately 7.7%.
The Indian IT sector has been under pressure over the last two years after the Covid-19 pandemic boost. However, over the last one year, the gap in underperformance has narrowed. Nifty IT is up 25%, and Nifty 50 is up 26% in the last year.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
