Big tech likely to post tepid numbers in another quarter of subdued growth

Bengaluru: As muted demand conditions persist, the top-5 Indian IT services companies are expected to post a weak sequential growth of anywhere between (-)1 per cent to 2.3 per cent for the January-March quarter, according to sectoral experts who spoke to DH.

Traditionally, the IT industry in the fourth quarter of a financial year neither beats the excitement of the first two quarters, nor mirrors the weak trends typical of the third quarter, Dipeshkumar Mehta, who is a senior research analyst at Emkay Global Financial Services, said.

The fourth quarter earnings season for the IT sector will be kicked off by bellwether Tata Consultancy Services, which is set to report its financial results on Friday.  Bengaluru-headquartered Infosys and Wipro will follow suit the week after, on April 18 and 19, respectively.

For the full financial year 2023-24, growth numbers for the IT giants  are expected to remain positive, even as unabated weak demand trends persisted through the year with clients tightening purse strings amid a larger macroeconomic slowdown.

Gaurang Shah, senior vice president at Geojit Financial Services, said that some mid-cap companies - including LTIMindtree, KPIT Technologies, Coforge, Cyient and Tata technologies - may outperform the large-cap peers in the sector.

Despite a flat to marginal revenue growth, Shah expects margins to fare better on a quarter-on-quarter basis, alongside expectations of a few large deals in the last quarter.

“For Q4, Within tier-1 IT companies, TCS is expected to lead sequential growth at 1.3 per cent, followed by flat growth for Infosys and HCLTech, and sequential decline for Wipro, Tech Mahindra and LTIMindtree,” Apurva Prasad, vice president for institutional research (IT sector) at HDFC Securities, said.

This earnings season, analysts will be keenly watching the commentary on recovery in discretionary spending by clients, alongside IT budgets, pricing scenarios and deal pipelines. A full year revenue guidance for FY25 will also be keenly eyed from Infosys and HCLTech.

Sectoral experts anticipate progressive growth through the current financial year, with quicker recovery anticipated along the back half. Elections at home and in major client markets will be a factor to watch out for, they added cautiously.

Through FY24, IT services companies, which account for a bulk of hiring in the tech sector, continued with a declining net hiring trend in light of excess capacity post the hiring boom of FY22.

Jaideep Kewalramani, COO and head of employability business at TeamLease Edtech projected  stable attrition and utilisation rates for Q4, alongside an uptick in hiring numbers in FY25. He however, does not foresee a dramatic change in net headcount additions during the period.  

Sectoral analysts who spoke to DH unanimously projected a constructive medium to long-term outlook for the sector in light of the anticipated interest rate cuts, which will infuse greater liquidity in the markets.