Citi sees pick up in demand for IT in FY14

Takes cue from Cognizant's strong quarterly results, whose 7% revenue growth beat estimates and numbers posted by its peers

Citigroup Global Markets believes that a demand pick-up in the Information Technology sector is likely in the current financial year, taking a cue from Cognizant’s strong quarterly results.

An IT Services and Software report authored by Surendra Goyal and Rishi V Iyer noted that the revenue growth of around 7% over the previous quarter was ahead of both consensus estimates as well as the numbers posted by its peers. Other IT companies had posted growth of around 3.5%.

“While partly seasonal, demand trends seem largely positive, and reaffirm our view that FY14 should see a pick-up,” said the report dated August 6.  

The report noted added that management attributed a large part of the performance to discretionary spend and has also raised guidance.

The report also noted that the sector has benefited from good quarterly results, 'lack of choices' in India and a depreciating rupee.

Meanwhile, hiring for the sector has been limited with companies looking to go slow on new recruits.

“…hiring has been muted for most companies in the sector, indicative of changing nature of demand and companies adapting with just-in-time hiring and operating at high utilizations,” it added.

Citi’s top picks for IT are HCL Technologies, Infosys and MindTree, said the report.