Modest Growth Likely For IT Cos In Q3FY25

TCS will kickstart the earnings season today and is likely to post a revenue growth of 0.4%, Infosys may see 1% rise. HCL Tech to increase 3.7%. Wipro is expected see some softness in its revenue growth with 1% sequential decline in revenue

Bengaluru: Indian IT services companies are likely to post a modest revenue growth with stable margins in the third quarter of ongoing financial year as furloughs, and marginal uptick in demand environment will keep the upside under check.

According to brokerage firms, rupee depreciation against US dollar will support margin profile of Indian IT firms, which are otherwise under pressure to protect their margins. Most of these brokerage firms, however, pointed out that gradual recovery is likely from fourth quarter onwards with improvement in the macroeconomic environment.

Big IT firms are estimated to report a revenue growth in the range of -1 per cent to 3.7 per cent sequentially on constant currency basis. Revenue of mid-tier IT firms is expected to grow in the range of zero per cent to 5 per cent quarter-on-quarter (QoQ) in CC terms, brokerage firm, Motilal Oswal said in a report.

While India’s biggest IT firm, Tata Consultancy Services (TCS) is likely to post a revenue growth of 0.4 per cent sequentially, Infosys is expected to see 1 per cent rise in revenue. HCL Tech is likely to perform better among the top firms with 3.7 per cent increase in revenue growth rate, the brokerage firm said. Wipro is expected see some softness in its revenue growth with one per cent sequential decline in revenue.

According to analysts, the growth acceleration seen in the BFSI (banking, financial services & insurance) vertical is likely see further momentum in the third quarter. Moreover, hi-tech vertical after several quarters of slowdown, is anticipated to recover in the third quarter.

However, after several quarters of good growth, Europe will see slowdown pulling down technology spend of enterprises. Especially, engineering, research & development (ER&D), and manufacturing could face challenges from the German automotive sector, leading to slowdown in the overall spend.

On the margin front, rupee depreciation against the US dollar would ease up pressure on the margin front. Third quarter is usually considered as a seasonally weak quarter due to less number of working days owing to furloughs.

Motilal Oswal said in the report that TCS is likely to see 40 basis points improvement in its operating margin during the third quarter. Similarly, Infosys is expected to report one per cent improvement in its margin from tailwinds coming from pricing improvement, reduced dependency on subcontractors and rupee depreciation.

Meanwhile, mid-tier IT firms will continue to outshine their larger peers in terms of revenue growth rate. Among these firms, Coforge and Persistent Systems are expected to post sound sequential revenue growth numbers for the third quarter ending December 2024.

Indian IT industry will kickstart the earnings season with TCS announcing its third quarter results on today (January 9, 2025).