Q3 results preview: TCS to Wipro, IT firms may post better revenues

Optimism on revenue growth based on projected improvement in technology spending in CY25

Indian information technology (IT) service providers are expected to post an improvement in revenues on a year-on-year (Y-o-Y) basis for the December quarter of the current financial year (Q3FY25). The top four IT firms — Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro — are likely to grow between 0.1 per cent and 7 per cent Y-o-Y in Q3FY25, according to Bloomberg consensus estimates.

 

TCS, the largest IT services company in the country, will announce its Q3FY25 results on January 9, followed by the rest of the IT majors.

 

“Despite seasonality (furloughs), most IT companies are poised for positive Y-o-Y growth,” said IDBI Capital in an earnings preview. 

 

Optimism about revenue growth is based on a projected improvement in technology spending in calendar year 2025 (CY25). Core tech modernisation, cloud, data (horizontally), and financial services (vertically) would drive tech spends.

 

However, the manufacturing sector remains weak due to ongoing programme deferrals and cancellations from original equipment manufacturers (OEMs), IDBI Capital added.

 

Meanwhile, dollar-denominated revenue growth is expected to decline sequentially for IT majors on the back of a furlough impact and unfavourable currency movements, Elara Capital said in a note.

 

“Margins for TCS, HCL Technologies, and Tech Mahindra may improve sequentially, led by cost optimisation. For Infosys and LTIMindtree, it may drop, given negative operating leverage and the impact of wage hike, respectively,” Elara Capital said.

 

Margins of largecap companies are expected to remain positive between 10 basis points (bps) and 100 bps sequentially as wage hike impact has been factored in in the first half of the current financial year (H1FY25), according to analysts at IDBI Capital.

 

“Strong demand environment in banking, financial services, and insurance, or BFSI/US geography would continue to be resilient and drive growth for the IT sector,” said one of the analysts.

 

Meanwhile, the market for tech jobs is on track to recovery, with an ease in tech layoffs. The revenue for the BFSI segment is expected to grow on the back of an improvement in bank tech spends over the past few quarters.

 

“Furloughs and cross-currency headwinds will adversely impact Q3 numbers, but on an aggregate basis, the rate of change is positive, supported by improved decision cycles and discretionary spending, despite the absence of mega deals,” said HDFC Securities Institutional Research.