From TCS to Infosys, December quarter IT results hint at a better FY26

The third-quarter (October-December) of 2024-25, seasonally a soft quarter for Indian information-technology (IT) services firms, has shown early signs of recovery for the sector.

 

While underlying growth continued to be weak in the quarter for most of the top players, what is giving confidence is the commentary that discretionary expenditure is coming back.

 

Management in all the top players has said discretionary spend is gaining momentum, especially in the largest vertical -- banking and financial services -- along with sectors like retail and health.

 

Among the top four -- Tata Consultancy Services (TCS), Infosys, HCLTech, and Wipro -- it is Bengaluru-based Infosys that has performed the best, which is evident in its full-year revenue guidance.

 

Infosys upped its guidance for a third consecutive quarter. It now expects FY25 revenue to grow in the range of 4.5-5 per cent from the earlier 3.75-4.5 per cent.

 

While this improvement was expected, the guidance implies revenue growth to decline in Q4. 

 

“Infosys’ revenue beat in Q3 was aided by higher third party/pass-through components and the guidance improvement was on expected lines (implying similar organic ask as HCLT). The deal booking run rate remains low, but adequate for growth acceleration in FY26,” said a report from HDFC Securities.

 

The report from HDFC Securities further said: “While INFO’s YoY revenue growth eclipsed TCS after nearly eight quarters, both companies’ growth has been supported by higher software/hardware costs with Rs 70 per cent of growth for TCS and 30 per cent of growth for INFO linked to mega deals of the past. The quality of revenue may improve, as the dependence on mega deals reduces ahead with improvement in discretionary spending.”

 

Quoting TCS management, Elara Capital pointed out discretionary demand was expected to improve with reduced interest rates, easing inflation, and stability after the US election, boosting confidence in CY25 and CY26.

 

For Indian IT services the third and fourth quarters of the financial year are soft due to seasonality, furloughs, and holidays.

 

But based on order books and steady improvement in geographies and segments in the third quarter, the street is expecting FY26 to be a better year.

 

K Krithivasan, chief executive officer (CEO) and managing director (MD), TCS, said though the company experienced negative constant-currency growth across major geographies, he was confident CY25 would be better than CY24.

 

“We are pleased with the excellent TCV (total contract value) performance in Q3, but what we want to emphasise is TCV is growing in North America and in the BFSI (banking, financial services, and insurance) and CPG (consumer packaged goods) segments. We also see an improvement in sentiment on discretionary strength,” he said during the media briefing.

 

Similarly, Salil Parekh, CEO and MD, Infosys, said: “In the last quarter (Q2) we had seen discretionary spend in the US improving. This quarter we have seen discretionary spend among the European financial services players also improving. We also see the retail and consumer sectors in the US showing signs of improvement. We see this as a positive.”

 

The other positive that gives a hint of a better FY26 is hiring numbers. All the players have pointed to hiring more than what they did in FY25. TCS, which generally hires 40,000 annually from campuses, said FY26 would be a better hiring year. Similarly, Infosys said it would hire 20,000 from campuses (up from 15,000 in FY24). HCLTech and Wipro also added they would hire 10,000-12,000 freshers.

 

On Generative artificial intelligence (GenAI), all companies said it was becoming part of their deal pipeline.

 

Srini Pallia, CEO and MD, Wipro, said when it came to what clients were looking for, “there is going to be a good amount of spend on GenAI, because they want to use it to transform their operations, infrastructure and also for software development. This is an opportunity for us.”