Demand In Global IT Services Industry Likely To Improve In 2025

Earnings of major IT companies have started on a positive note. Though there is not much to celebrate as yet, the negative factors seem to be bottoming out. India’s largest IT services company, Tata Consultancy Services has indicated that demand environment has not changed much in the first quarter of ongoing financial year. However, some key verticals like BFSI (banking, financial services & insurance) are showing signs of revival. This positivity has also been indicated by HCLTech, another top-tier Indian IT services firm.

The TCS management has said that strong recovery is seen in the US, while HCL management said the company is observing demand coming in from Asia Pacific and Europe in the BFSI space. As BFSI vertical contributes around 30 per cent of total revenue, its turnaround definitely brings good news to the industry. Similarly, generative AI engagements are growing. Though companies are not quantifying GenAI contributions to the overall revenue, but projects in this new technology space are growing. This is an indicator that at some point, IT firms will start reaping dividend from their GenAI-related investments. Thirdly, cost pressures are slowly easing out as seen in the Q2 performance.

Companies are reporting steady operating margin. Though many firms are holding back salary hikes, some are reducing their subcontractor costs in order to control cost pressure. Steady employee attrition numbers especially give a lot of comfort to IT firms to keep the wage pressure under check. Apart from these factors, second quarter performance also provides a glimpse into the IT firms’ efforts to get the supply side ready for an uptick in demand. TCS has shown improvement in its headcount numbers for the second consecutive quarter.

Earlier, Accenture has shown increase in its headcount. Though HCLTech’s headcount has reduced, it can be considered as a company-specific issue than a general trend. Most IT companies are likely to improve on this front with the focus shifting to fresher hiring. Usually, any such increase is seen as a precursor to demand recovery. Although management of IT firms are shying away from giving public statements of an impending demand recovery, sources in the know said that they are anticipating this possibility.

Most teams are geared up for demand improvement post-US elections. Many brokerage firms have pointed out that the rate cut by the US Federal Reserve augurs well for capex in sectors like telecom and manufacturing. Moreover, the upcoming holiday season in the United States and Europe is likely to boost consumer sentiment, which will subsequently support retail vertical. These factors indicate that global IT services companies are poised for better days ahead. However, the third quarter may not be the right period to judge these positive factors.

This is, after all, the time when a lot of furlough is seen owing to holidays. Less working days and reduced volume of project work are the features of the third quarter. However, 2025 may start with good news for the IT industry. Though there are many unknowns that will impact the overall sentiments, global IT services industry seems to be at the cusp of a turnaround in the coming quarters.