Things are turning better for the Indian IT industry

Indian IT industry can breathe fresh air seeing the fourth quarter earnings of Tata Consultancy Services (TCS). The IT bellwether is confident that FY25 will be better than FY24, which is a major a respite from the current slowdown. The previous fiscal was a bad year for the entire Indian IT industry with enterprises holding back IT spend in key markets, including the US and Europe. Digital deals, which had become the mainstay of revenue for most IT services companies, have become scarce. This has impacted the revenue growth in the first three quarters of FY24. Key verticals like BFSI (banking, financial services & insurance) have seen a negative growth as cost inflation led financial institutions in the US to halt discretionary spending. In this context, TCS management’s commentary on better growth year is likely to give a much-needed relief to investors. Some of the early indications of better days ahead are already visible. Hiring has seen an uptick of late. TCS has gone to the campuses and reportedly given 10,000 offer letters. Not only TCS, many IT firms are going to the college campuses this year after skipping it last year. Similarly, BFSI vertical, which contributes close to one third of total revenue, has achieved a welcome turnaround.

Various sub-segments of BFSI vertical like insurance, capital market, and retail banking have shown signs of improvement. The TCS management expects that deceleration in the BFSI segment has bottomed out and the vertical will see better growth this fiscal year. Improvement in the US and key vertical BFSI are driving the TCS management’s confidence of clocking better growth. While TCS’ Q4 earnings rekindle hopes of recovery in FY25, it has to be seen how the other IT players perform in the coming days. Infosys, Wipro and HCL Tech will announce their results this month, while many mid-tier players will follow suit. If most players indicate that growth revival is on the horizon, then the industry performance will be better. Usually, divergence is marked in performances during tough times. While a rising tide lifts all boats, tough time exposes the weaknesses.

The market has already seen glimpses of such divergence. Some large and mid-tier firms have performed better than in FY24 as compared to their peers. In this context, it can be safely said that FY25 will not be a year when industry-wide growth will be seen. Rather, those players with better technology capabilities, execution capacity and go-to-market strategies will emerge as winners in the current financial year. As far as hiring is concerned, FY24 has seen a decline in overall headcount. TCS posted consecutive decline in its total headcount for three quarters. This is likely to be the trend for the contemporary players. However, FY25 is likely to be better than the last fiscal, including the fresher placement to lateral hiring aspects. Overall, the IT industry is not out of the woods yet but things are slowly turning for the better.