IT sector braces for another weak quarter amid macroeconomic concerns

Q4 earnings preview: As the information technology (IT) companies gear up to announce their fourth-quarter earnings, analysts foresee a challenging period marked by subdued revenue growth. With spending trends remaining tepid, particularly in sectors such as banking, hi-tech, and telecom, expectations for the quarter's performance are muted, analysts at Antique Stock Broking said.

Revenue growth for the top five IT companies is expected to hover between -1.5 per cent to 1.0 per cent in constant currency (CC) terms, while mid-cap firms may witness a slightly better performance with growth ranging from 1 to 5 per cent. The prevailing cautious sentiment is expected to prompt companies to issue conservative guidance at the outset, reflecting the sombre near-term outlook. Exit rates for many are also likely to be lacklustre, further underlining the subdued environment for IT companies, analysts noted.

Leading players like Infosys and HCL Technologies are set to provide cautious guidance for the fiscal year 2025. Infosys is expected to offer revenue growth guidance in the range of 5–7 per cent, coupled with margin guidance of 20-22 per cent. Meanwhile, HCL Technologies may present a revenue guidance between 6–8 per cent in CC terms.

The sector's outlook remains clouded by macroeconomic uncertainties, as evidenced by Accenture's recent results, which highlighted clients' continued caution regarding tech spending in the near term. Consequently, further earnings downgrades are expected during the upcoming results season. However, despite these short-term challenges, the medium-term outlook for the Indian IT sector remains robust, buoyed by sustained investments in cloud and digital technologies, analysts noted.

Analysts at Antique have adjusted their earnings forecasts for the fiscal year 2025, with a slight reduction of 1-4 per cent in earnings per share (EPS) projections, reflecting the anticipated lower revenue and margin estimates for the fourth quarter.

Against this backdrop, analysts have revised target prices for some key players in the sector. LTIMindtree target price has been reduced to Rs 5,700 from Rs 6,350, while HCL Technologies retains its status as a key buy among large-cap IT firms. In the mid-cap segment, Mphasis emerges as a preferred choice.

Here is what to expect from IT companies in Q4

Infosys

The company is projected to witness a marginal revenue decline of 0.3 per cent quarter of quarter (QoQ) in CC terms. Guidance for FY25 revenue growth is estimated between 5-7 per cent, with margins expected to range from 20-22 per cent, analysts at Antique Stock Broking said.

TCS

Revenue growth for the country’s largest IT services company is expected to come in at 1.0 per cent QoQ in constant currency terms with marginal margin improvement. Strong deal bookings of around $10 billion are expected to be reported.

HCL Technologies

The Noida-based company’s revenue growth in CC terms is expected at 0.3 per cent sequentially driven by the seasonally strong products business and the ramp-up of the Verizon deal. Margin decline of 150 bps QoQ is expected, with FY25 CC revenue growth guidance at 6-8 per cent.

Wipro

A slight decline in revenue for fourth quarter is expected, with overall EBIT margin contraction due to wage hikes. Guidance for first quarter of current fiscal revenue growth is expected to range from -0.5 to 1.5 per cent in CC terms.

Tech Mahindra

A constant currency revenue decline of 1.5 per cent QoQ is forecasted, with operating margin expansion expected at 7.4 per cent. Deal wins are expected to improve but remain below potential.

LTIMindtree

Revenue decline of 1.0 per cent in constant currency is anticipated, with margin decline of 50 bps QoQ. Extended furloughs and ramp-downs are expected to impact revenue growth.