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In 2024, the Enterprise IT Services sector is strategically positioned for a potential cyclical recovery, marked by a notable 20 per centdecrease in valuation from recent peaks. In contrast to the robust performance of Software and Semiconductors in 2023, IT Services exhibited a unique resilience, with operating metrics closely mirroring economic indicators. With signs of troughing economic indicators and sector revenue / earnings growth expected to re-accelerate, as historically seen that its worth revisiting these late cycle companies slightly ahead of their operating metric inflection as they tend to quickly benefit from potential EPS upgrades and valuation re-rating as per the report, Enterprise IT Services report by BNP Paribas.
- Also read: TCS gains $2 billion brand value in a year
In Software, we saw growth estimates began to cool in H2’22 and re-accelerate in 2023, whereas IT Services were still delivering top line beats in Q1’23 and only started to slowdown from Q2’23. Troughing economic indicators and sector valuations have often proved to be a good entry point on a combination of cheap valuation multiples and the onset of cyclical economic uptrends, says BNP Paribas.
BNP Paribas highlighted Capgemini and Infosys as our Global IT Services top picks, followed by Accenture, TCS and HCL Tech. The least preferred pick by is BNP Paribas Wipro, followed by Tech Mahindra and Alten.
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