Markets
Info Edge sees green shoots in IT demand
Summary
- While February's positive trend is promising, sustained demand momentum is necessary to declare a complete recovery.
For Info Edge (India) Ltd, the path to an improved earnings trajectory hinges on a resurgence in demand in the information technology (IT) sector. The company's recruitment business, which includes portal Naukri.com, earns roughly half its revenue from the IT sector, which has been grappling with demand concerns for a while now. However, there was a glimmer of hope in February.
The Naukri JobSpeak index, a measure for white-collar job recruitments in India, showed that hiring in the IT sector recorded a nearly 16% sequential increase in February. This spike, the most significant in several months, suggests that the sector may be on the cusp of a demand revival. The positive trend wasn't limited to IT alone; other industries, including oil and gas, pharmaceuticals, and insurance, also saw healthy hiring momentum, driving the overall index up 13% month-on-month in February.
“The JobSpeak index's stronger-than-anticipated rise is a favourable signal, aligning with our projections of a strengthening demand environment ahead," said a Nuvama Research report dated 11 March. The broking firm noted that February is traditionally a strong month for Naukri. Despite that, the 13% increase surpassed the previous year's 9% growth in the same month.
However, on a year-on-year basis, the overall index and the IT-specific index are down about 8% and 15%, respectively. As such, caution is warranted. Also, management commentary of top IT companies after the December quarter earnings did not point to any significant uptick in discretionary IT spending, suggesting the sector's recovery isn't assured. While February's positive trend is promising, sustained demand momentum is necessary to declare a complete recovery.
On a brighter note, Info Edge's non-IT segments are showing robust performance, which has helped mitigate the IT sector's sluggishness to an extent. In the nine months to December, billing in Info Edge’s recruitment vertical dropped 1.4%, as the fall in IT segment was offset by growth in non-IT areas. This may have contributed to investors remaining positive on the stock, with shares of the company having risen 49% over the past year. Additionally, a surge in market capitalizations of Zomato Ltd and PB Fintech Ltd, where Info Edge holds approximately 14% and 13% stakes, respectively, has also buoyed sentiment for the stock.
