Large-cap IT firms eye growth amid macroeconomic uncertainty

Large-cap IT eye growth: In the face of continued macroeconomic uncertainty, the demand landscape has exhibited resilience in the IT sector over the past quarters, driven by cautious discretionary spending. 

Image Credits: Pexels

The recent dovish stance adopted by the Federal Reserve has injected a dose of optimism, hinting at a potential recovery in discretionary spending and fostering hopes of normalisation by FY25. 

Factors such as anticipated rate cuts in the US, a positive outlook on discretionary spending buoyed by robust US macro data, easing impacts of tech-spending normalisation, and sustained healthy deal-intake/pipeline suggest a promising growth recovery, analysts said.

This anticipated growth normalisation is expected to underpin consensus expectations and analysts' forecast of high single-digit revenue growth for large-cap IT companies in FY25, brokerage firm Emkay said in a note. 

The sector's reasonable valuations further enhance the appeal of large-caps, with a pecking order favouring Infosys, HCLTechnologies, Tech Mahindra, Wipro, TCS, and LTIMindtree among Tier-1 companies.

Hiring dilemma persists

Contrary to the optimistic outlook on growth, the hiring landscape presents a contrasting picture. During the September quarter (Q2FY24), the aggregate headcount witnessed a fourth consecutive quarterly decline, reflecting subdued demand and strategic restraint in hiring. 

With companies opting not to fill attrition gaps created during the pandemic-induced over-hiring, hiring activity is unlikely to witness a major uptick in the near term. Attrition levels are anticipated to remain stable at their current lower levels, the brokerage firm noted.

Mixed performance across sectors

December marked a mixed performance across sectors, with 28 out of 38 industries reporting a YoY decline in the overall index. 

Both IT-Software/Services and BPO/ITES/CRM/Transcription sectors reported declines on both YoY and MoM bases. 

Sectors such as Media/Dotcom/Entertainment, Pharma/BioTech/Clinical Research, and Textiles/Garment/Accessories exhibited growth, while others like IT-Hardware & Networking, Auto/Auto Ancillary, and FMCG/Foods/Beverages faced declines.

Naukri’s JobSpeak Index: A dip in YoY, A modest rise MoM

In December 2023, Naukri’s JobSpeak Index witnessed a 15.6 per cent year-on-year (YoY) decline but showed a modest 2.4 per cent month-on-month (MoM) uptick. 

The index reported a decline in nine out of twelve months in Calendar year 2023 (CY23) on a YoY basis. 

The IT sector index, reflecting the sector's challenges, reported a sharp 21.5 per cent YoY drop in December 2023, signalling ongoing hurdles in hiring trends. 

Emkay suggests that demand conditions remain unchanged, posing a challenge to a major recovery in hiring without a macroeconomic upturn.