Nomura is positive on IT majors from the largecaps and midcaps segment for 2023, according to global brokerage firm Nomura. The overseas firm said that the IT sector valuation has moderated significantly and its premium to broader markets has fallen in the past six months. Among the sectoral indices of the BSE, the Information Technology index has cracked the most 20 per cent on a year-to-date basis until December 8, while the benchmark BSE Sensex has gained 7 per cent during the same period. Other sectors, including BSE Healthcare, Consumer Durables and Realty, lost 6 per cent and 11 per cent YTD.
In FY 24 there is a difference in the operating performance of domestic IT services companies, according to Nomura. Companies with a lower discretionary portfolio consulting and exposure to Europe are likely to fare better than the rest. The brokerage said that TCS and Infosys will have the weakest revenue growth in FY 24 and the strongest in large caps.
Shares of Infosys and Tata Consultancy Services have plunged 14 per cent and 10 per cent YTD. Nomura's FY 24 earnings projections are higher than consensus estimates for Infosys and lower for TCS and Wipro in the large caps space and higher for Persistent Systems in the midcap space.
The brokerage has a Buy rating on Infosys and Persistent Systems with a target price of Rs 1,900 and Rs 4,810. The former shares traded 2.84 per cent down at Rs 1,574 in the morning trade on December 9, while the latter was down 2.39 per cent at around Rs 4,002.
It has a Reduce call on Tata Consultancy Services Target price of Rs 2,850 and a Neutral rating on Wipro's 425 Shares of Wipro has plummeted 44 per cent YTD till December 8.
Nomura said that ease of supply-side issues like softening of attrition is likely to lower the back-filling cost of employees, despite the fact that they share their views on margins. The recent-hired employees are trained and deployed, which would be a tailwind. The price increase is likely to be positive, but we think it will slow down in the calendar year 2023 with more offshoring deals and higher pushback from enterprises given the easing labour market situation and falling currency. We expect an average EBIT margin improvement of 80 basis points in FY 24 for the stocks under our coverage. It sees a margin expansion of 130 basis points for Infosys among large caps and 160 basis points for Persistent in the mid-cap space.