“Q3 is a seasonally weak quarter. This time the performance will be better because of rupee depreciation,” said Pareekh Jain, founder of consultancy firm EIIR Trend. “Overall, we will look forward to management affirmation that the market bottomed out in CY24 (calendar year 2024) and CY25 should be better.”
The industry will see the third largest IT player HCLTech likely fronting the organic revenue growth among top-tier software service exporters due to its strong seasonality in software business and Coforge to lead the mid-tier peers due to higher large deal ramp-ups.
As per an Emkay report, “Recovery in BFSI (banking, financial services & insurance) will aid growth, while weakness in manufacturing, particularly auto, is likely to weigh on growth.”
IT budgets
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The sectoral focus will remain on calendar year 2025 spending budgets and demand outlook.Bellwether Tata Consultancy Services (TCS) will kickstart the earnings season on January 9. HCLTech will announce on January 13 while second largest IT giant Infosys to report results on January 16, followed by cross-city Bengaluru-based rival Wipro and Tech Mahindra (TechM) on January 17.
“We expect aggregate revenue growth in 3QFY25 to moderate slightly to 0.7% QoQ cc (quarter-on-quarter, constant currency)…We expect divergence in growth to be high, as we expect HCLTech/Coforge to deliver 4.2%/4.5%. QoQcc growth in revenues, but expect TCS/Wipro to report QoQ decline in revenues,” said Jefferies in a Q3 preview report.
Most analysts expect aggregate margins may remain mixed or flat sequentially, with TCS and HCLTech leading margin expansion while companies with wage hikes such as Wipro and LTIMindtree likely to report higher decline in margins.
Moreover, as all currencies have depreciated against the US dollar, the Jefferies report says all IT firms will have higher foreign exchange (forex) headwinds in 3QFY25, with the highest (80-100 bps) for TCS and HCLTech.
“The BSNL deal ramp-down is likely to weigh on near-term growth rate for TCS, but we expect TCS to participate effectively on the anticipated recovery in demand, on the back of its diversified offerings across cost optimisation and transformation,” the Emkay report added.
Additionally, the recent upward revision in revenue guidance by Accenture lends some credence to the revenue uptick outlook for FY26 by most analysts.
Both Jefferies and Emkay expect Infosys to upgrade the lower end of the revenue guidance to 4-4.5%, narrowing it from the earlier estimate of 3.75-4.5%. HCLTech may also raise the outlook between 4.5% and 5.5% from the previous estimate of 3.5-5%.
Jefferies report expects Wipro to report a sequential drop in revenues by 1%, closer to the mid-point of Wipro’s guidance and watch out for the sustenance of its consulting growth.
For second largest player Infosys, rupee fall will aid margins to remain steady and revenues while remaining soft, will be supported by large deal ramp-ups.
Besides the demand and revenue outlook commentary from the management of the outsourcing companies, other key monitorables are the CY25 IT budgets of clients and discretionary spending uptick, deal pipeline, pricing environment, trends in key geographies of North America and Europe, and verticals like BFSI, retail, manufacturing, hi-tech and telecom.
A critical data point will also be the progress on GenAI across software service exporters.
Further, the hiring plans will be watched out as most IT majors have been prepping to make fresh recruitment ahead of the demand pick up and rising competition with the global capability centres (GCCs) grabbing market share.
