New Delhi, April 9 (IANS): The IT sector’s fundamental growth drivers remained intact despite a slowdown, HDFC Securities said.

The IT index has risen more than 40% over the past year, buoyed by rising earnings.

“Absolute return potential for the sector is expected to be subdued, with core growth returning to the medium-term baseline, lower growth dispersion in FY23E compared to FY22E and winds contrary to multiple expansion due to the rising cost of capital and geopolitical risk premium, inflationary factors and the lead-lag cycle of costs and prices.

“Upside risk is the longevity of a high growth rate and downside risk is the second-order impact of a prolonged inflationary environment and geopolitical dislocation,” HDFC Securities said.

According to the brokerage, the fundamental drivers of the sector remain intact, helped by the continuity of the multi-year technological pivot in all sectors, the institutionalization of operational efficiency, supported by the increase in the installed capacity of talent, the main Indicators remaining robust – growth or outlook for global partners, services peers, hiring activity in fiscal year 2018-21, and deal trends.

“Incremental tailwinds are based on pricing – benefits accrue with a lag based on contract renewal cycle and with increasing reach, depreciating INR and increasing offshoring and the diversification of the Eastern European talent base by global companies.”

In addition, the report indicates that there is some moderation in growth, falling from over 4.5% of CQGR over the past six quarters to baseline levels – with sequential revenue growth estimated at 2.6 %QoQ.

“However, fourth quarter revenue growth of 2.6% quarter-over-quarter and 16.6% year-over-year remains well above the historical mark and the addition of additional sequential revenue of $470 million is more than 2x historical revenue added.”