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00:00Sumit Pokharna, he's the VP of Fundamental Research at Cortex Securities.

00:04Sumit, thanks so much for joining in.

00:07Sumit, let's start off with your view on what you've made when it comes to TCS,

00:12firstly last Thursday, and now HCL Technologies.

00:15How are you reading at trends at the moment?

00:19Yeah, very good morning to all of you.

00:21Definitely, if you look at TCS, demand outlook remains cautious,

00:27similar to the past few quarters.

00:29However, the key business themes which have been seen across industries were

00:35cost optimization, vendor consolidation, customer experience transformation,

00:40supply chain modernization, risk and resilience.

00:43So what does that mean?

00:45It means basically the clients are spending on these spaces,

00:52so that is helping companies like TCS.

00:56So globally, clients continue to prioritize efficiency

01:00through cost transformation programs.

01:03But on the flip side, if you look, demand for discretionary deals

01:08with low immediate return on investment remaining relatively subdued.

01:13So this in a nutshell talks about the demand environment, how it remains cautious.

01:18So if you look at the stock prices or the market,

01:23investors have priced in a very good demand, and the hope has built up.

01:28So valuations of most of the IT companies have become very expensive at this juncture.

01:33All right.

01:35So while valuations remain a tad expensive at the moment, Sumit,

01:41your expectations from other names like Infosys and Wipro,

01:46which are also due in terms of earnings coming through?

01:50Yes. So we are expecting Infosys to...

01:54So broadly, there are two aspects to it.

01:57First is definitely the demand environment is expected to improve,

02:01but not immediately because the interest rate started cutting down.

02:06That is quite positive, particularly from the BFSI vertical.

02:10But there are geopolitical concerns which are also emerging.

02:14That is making clients a little nervous.

02:17Secondly, if you look, demand, as I mentioned, geopolitical risk,

02:25there are pockets where some signs of recovery is visible, like BFSI I just mentioned.

02:33Clients are getting some confidence due to interest rate cuts and better stability in macros,

02:39focused on the cost efficiency and automation.

02:43Now moving to retail vertical, which is led by travel and hospitality.

02:48Clients are cautious on macro.

02:50Supply chain, M&A and customer experience are the key priorities in this space.

02:55So far, manufacturing vertical is concerned.

02:58Demand outlook, pressure in the near term we are seeing due to labor shortage

03:03and supply chain, particularly in the auto and aero.

03:08Expect demand to pick up in the coming quarters after resolution of issues.

03:13So far, life sciences and healthcare is concerned.

03:17A couple of client-specific headwinds in the U.S. due to scope reduction,

03:21mainly on-site, as transformation work was reduced.

03:25So that's there.

03:27Now finally, on the telecom side, return on investment expectations are heightened.

03:32So that is a point to be noted.

03:35And high-tech clients are focusing on cost optimization and efficiency.

03:41So caution on capex and transformation investments.

03:45So in a nutshell, we can say that demand outlook remains cautious on macro

03:51and geopolitical situations, and auto and aero segments in manufacturing are vulnerable.

03:59Right. Sumit, also a question on the upcoming elections in the U.S.

04:04Do you think that could have some sort of bearing in terms of client decisions?

04:09Because from what we understand from management, at least,

04:12that they are suggesting that a lot of the clients want to wait for, well,

04:16further spending in terms of indication,

04:19even though the outcome of the election itself may not matter,

04:22but they just want to hold on to that.

04:24What is your reading in this case?

04:27Definitely this is a big event,

04:29but we believe that what is a bigger thing out here is that whichever government comes,

04:37the demand or the interest rate cut is quite positive for BFSI vertical,

04:45and Indian companies are just waiting once the discretionary spend starts picking up in the U.S.

04:51and other developed countries or client-centric regions,

04:55then they are going to get benefited a lot.

04:58I don't think it will happen irrespective of which government comes.

05:03If the macros are in line, then interest rate downward trajectory will continue.

05:10It's just a matter of time how quickly that happens.

05:13But we have already seen that the cycle has started,

05:16so there is no reversal back, nothing happening,

05:20but it is quite positive from a larger perspective of client spend on IT vertical.

05:26So what Indian IT companies are waiting for is the pickup in the discretionary demand,

05:31which is still subdued.

05:33As I mentioned, the clients are not interested in projects

05:36which have got a low return on investment in the short term,

05:39so they are just postponing those projects.

05:44Sumit, based on how things are and how things stand right now,

05:49how are you placed with respect to mid-cap IT companies

05:54and large-cap IT companies at the moment?

05:57Where do you think the preference is? Where do you think the stability is?

06:01We believe that valuations are very expensive at this point in time

06:06for mid-cap IT companies, for most of them, except for Coforge and Science.

06:11We are still bullish on that.

06:13So one needs to see that if somebody has to make a portfolio or a bet on IT,

06:19definitely they should focus more on the large-cap IT space,

06:22particularly Infosys, where the opportunity is huge.

06:27We expect, just to put things in numbers,

06:32we expect Infosys to raise their FY25 for revenue growth guidance

06:36to 4% to 5%, from 3% to 4%.

06:39So the guidance also implies that the momentum is moving towards more positive side.

06:48So that is there.

06:50Secondly, another positive factor which is helping IT sector

06:54is the rupee depreciation which is happening in India.

06:57So that is also positive.

06:59So coming back to your question, I think the comfort for me at this juncture,

07:04at these valuations, will be more with the large-cap IT companies

07:07rather than mid-cap IT companies.

07:10Alright. Well, on that note, Sumit, we leave it at that.

07:13Thank you so much for joining us.

Can Paras Defence's Order Book Growth Momentum Continue? | NDTV Profit

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