Software & Services share price target

Despite global trade, revenue growth for tier-I Indian IT services players has held steady for the last three quarters.

growth in Infosys will be aided by ramp up of deals & broad based growth. Hexaware, NIIT Tech, Persistent to post steady revenue growth in tier-2 IT services under our coverage universe. We expect revenue growth in CC between 1.3-6.5% QoQ for Tier-1 IT companies. Q2 is a seasonally strong quarter but YoY revenue momentum will be muted for most of the IT companies & deal closure will be muted due to uncertain global environment. We expect cautious outlook on financial services to continue will imply cross currency headwinds of 30-70bps under our coverage....

growth in Infosys will be aided by ramp up of deals & broad based growth. Hexaware, NIIT Tech, Persistent to post steady revenue growth in tier-2 IT services under our coverage universe. We expect revenue growth in CC between 1.3-6.5% QoQ for Tier-1 IT companies. Q2 is a seasonally strong quarter but YoY revenue momentum will be muted for most of the IT companies & deal closure will be muted due to uncertain global environment. We expect cautious outlook on financial services to continue will imply cross currency headwinds of 30-70bps under our coverage....

Accenture's commentary indicated a strong demand environment & pipeline, but it's revenue & guidance were slight below consensus expectations. The company has assumed global IT spending outlook of 34%, similar to the previous year. ACN reported Q4FY19 revenue towards the upper end of its guided range & marginally below consensus. CC revenue growth was 7.2% YoY vs guidance range of 5.0-8.0% YoY. Revenue growth was broad-based with strong growth in CMT, Resources and Products. North America & growth markets posted a strong growth of 8% & 12% YoY, but Europe was tad weak at 4% YoY. European banking clients contracted...

Accenture posted record bookings worth US$ 12.9bn in Q4FY19, including 16 US$ 100mn+ TCV deals, besides guiding for 5-8% YoY CC revenue growth for FY20.

Top picks: TCS, Mphasis, L&T Tech, Zensar and Sonata Indian IT has achieved early success in transitioning its business model (pivot to digital), evident in its growth leadership vs. global peers. Despite improving pricing power (digital, supply constraints) and growing addressable market, global macros turning adverse will create first among equals in the sector. Indian IT ex-TCS/INFY trades at a discount to its historical valuations (TCS/INFY at ~20% premium) and we maintain our stock selective stance, preferring names that have strong durability and stable core business.

delivered CC revenue growth of -1%-4.2% QoQ & Tier-II delivered USD revenue growth of -5.2%-4.7% QoQ. The management across our coverage companies has sighted weakness towards US, Europe & BFSI sector (inclined towards US capital markets). IT companies under our coverage are uncertain on Q2 revenue growth (TCS, Wipro) which we believe could incrementally reflect on FY20E growth. Guidance cuts or caution was given by LTI (mentioned improvement Q3 onwards), LTTS (cut guidance from 1416% to 12-14%, weakness due to hi-tech & telecom), Hexaware (cuts guidance from 20% to 19% due to headwinds on one BFS client) & Cyient...

delivered CC revenue growth of -1%-4.2% QoQ & Tier-II delivered USD revenue growth of -5.2%-4.7% QoQ. The management across our coverage companies has sighted weakness towards US, Europe & BFSI sector (inclined towards US capital markets). IT companies under our coverage are uncertain on Q2 revenue growth (TCS, Wipro) which we believe could incrementally reflect on FY20E growth. Guidance cuts or caution was given by LTI (mentioned improvement Q3 onwards), LTTS (cut guidance from 1416% to 12-14%, weakness due to hi-tech & telecom), Hexaware (cuts guidance from 20% to 19% due to headwinds on one BFS client) & Cyient...

Cognizant (CTSH) reported a CC revenue growth of 4.7% YoY and 3% on organic basis. Revenues grew 0.8% sequentially to US$4.14bn. CTSH reported revenues at the top end of guidance, but underlying performance continues to remain weak on account of external headwinds & company specific challenges, especially in Healthcare (27.4% of total revenues) & Financials services verticals (35.6% of total revenues). CTSH has tightened...

Unlike street expectation of buyback trend reversal for IT Services companies on introduction of 20% buyback tax by Finance bill 19-20, we expect that the preference for buyback over dividend may continue. Tax exemption to shareholders on buyback gains still holds tax advantage in favor of buybacks. Finance minister also proposed to increase minimum public shareholding (MPS) to 35%. In our view, any stock correction in TCS (BUY, TP Rs 2,390)...