Software & Services share price target

ISG (a leading global technology research and advisory firm) conducted its Q1CY23 index call to discuss key technology trends and ordering activity across industry verticals and geographies.

IT companies under our coverage, ahead of their silent period, have mentioned increased cautiousness among clients around decision-making due to heightened uncertainty arising from the recent banking crisis. Deal pipelines have not shrunk, but conversion to new deal wins is taking longer time.

Q3FY23 was a difficult quarter for most B2C e-commerce companies and investors were expecting recovery in Q4FY23E. However, our channel checks indicate B2C growth may underwhelm expectations. We note signs of consumption fatigue across online food ordering and BPC e-commerce.

Macro situation has worsened in Q4FY23 vs Q3FY23, but this has not translated to client cutting spending on existing projects. Already signed deals are progressing as per plan, and therefore, there is no delay in conversion of orderbook to revenue.

Impact on Indian IT Services companies Our picking order from Large Cap: Infosys, Tech Mahindra, TCS, HCL Tech, and Wipro. Our Picking order from Mid Caps: Persistent Systems, LTI Mindtree, LTTS, Cyient & Zensar.

Even though Accenture (ACN) has cut the top-end of its FY23 (Aug-ending) revenue growth guidance to 8-10% from 8-11% earlier, the mid-point of its organic growth guidance of 6-8% is same as that of earlier guidance of 5.5%-8.5%.

Despite the inflationary environment and global economic slowdown, the outlook on tech spending budgets remains upbeat

The recent quarter (Dec’22) earnings call commentaries of several US and European retailers suggest they are committed to continue their investments in technology around optimising supply chain and store operations, direct-to-customer channel, digital commerce, data analytics and sustainability.

Resilient deal flow, easing talent supply; Yet sector is in perpetual state of worry