UBS has come out with a note, and the key headline is that the Q4 FY21 earnings trend possibly indicates that the earning cycle has peaked.
The Q4 FY21 was mildly disappointing. Three out of the top-five IT companies disappointed in terms of their revenue performance, but the street viewed it as a blip. Hence, UBS’ view is contrary to that. According to UBS, the year-on-year (YoY) numbers will look good, but for the first half of the year and thereafter it will start tapering off.
Therefore, keep that in mind, when the valuations are trading at 1-2 times above their mean standard deviation, above their mean valuations. This is the reason why UBS is cautious on the sector; they believe the earning cycle is close to peaking, they have no buy recommendations.
UBS believes the IT sector should be viewed as a defensive against the broader market and that’s the reason to be invested in offshore IT. Therefore, they have a neutral rating on TCS, Infosys and Wipro and a sell call coming in on Tech Mahindra.
Watch the accompanying video of CNBC-TV18’s Reema Tendulkar for more details.