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The IT sector in India is gearing up for the announcement of the first quarter results for FY25, with key players like Tata Consultancy Services (TCS), Infosys, Wipro, and others leading the way. Analysts are expecting a mixed bag of results, with sluggish revenue growth but improving operating margins. Following a tepid performance in Q4FY24, IT service companies are optimistic about a recovery in revenues, driven by the ramp-up of large cost-takeout deals.
Analysts predict that this quarter could witness one of the weakest performances in the past decade, with slow recovery in discretionary spending but little evidence of growth in the flow business. However, with the BFSI and Communications sectors showing signs of acceleration in deal wins, there is some optimism for growth rates in these verticals.
The cross-currency impact for the quarter is anticipated to be minimal, with analysts projecting a 10-20 basis point headwind on a sequential basis. Foreign brokerage firm Nomura believes that Q1FY25 could mark the bottom of sluggish revenue growth for the Indian IT sector, with potential drivers like an interest rate cut cycle in the second half of CY24 and improved decision-making post the US elections in November 2024.
Revenue growth estimates for Tier-I IT companies range from -0.5% to +2.0% on a QoQ basis in constant currency terms, while Tier-II IT players are expected to see growth between -1.5% to +5.0%. Large caps like Infosys are expected to show the strongest revenue growth at +2.5% QoQ, while companies like HCL Technologies might witness a decline of -2% QoQ.
Margin performance for the quarter is expected to be range-bound, with factors like deferred wage hikes and currency movements balancing out the challenge of recovering lost volumes. TCS and Infosys are forecasted to see marginal improvements in margins, while HCL Technologies could experience steeper contractions.
The commentary from companies is likely to focus on demand pick-up in the latter half of FY25, indicating a more normalized spending environment in FY26. Overall, while the first quarter results are expected to reflect a mixed performance, the outlook for the IT sector seems cautiously optimistic, with hopes pinned on recovery and growth prospects.
