IT Sector Q3 Results Preview: Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro, among other Indian IT companies are set to commence the earnings season for the third quarter of FY25 next week.

TCS, the largest IT services company in India, will announce its Q3 results on January 9. Other IT companies will also soon announce their October-December quarter earnings.

The Indian IT sector is expected to accelerate the initial phase of recovery seen in H1FY25 with the technology spending expected to improve in 2025. Recovery appears to be expanding beyond US BFSI — which continues to strengthen — into additional industry verticals such as Hi-Tech, which is recovering ahead of schedule.

However, IT sector Q3 results are expected to be impacted by seasonal furloughs. But, looking beyond seasonality, macro uncertainty is gradually easing and analysts expect the outlook for technology spending to improve in CY25.

Brokerage firm Motilal Oswal Financial Services expects tier-2 IT companies to continue to outpace tier-1 firms in growth during the December quarter of FY25. According to the brokerage firm, the most important catalyst for the sector now would come after Q3FY25, when client budgets for CY25 would be finalized and the magnitude of change in client behavior would become clearer.

IT Sector Q3 Revenue Growth

The constant currency (CC) revenue growth of Tier-I IT companies is estimated to be in the range of -1.0% to +3.7% sequentially. Revenue of Tier-II players is expected to grow to the tune of 0% to ~5% quarter-on-quarter (QoQ) in CC terms, according to Motilal Oswal.

IT majors, TCS, Infosys and HCL Technologies are expected to see CC revenue growth of 0.4%, 1.0% and 3.7% on a sequential basis. Mid-tier companies should continue to do well and Motilal Oswal expects Coforge and Persistent Systems to grow by 4.9% and 4.0%, whereas Mphasis and Cyient could show 0.2% and 2.3% QoQ growth.

On an average, the brokerage firm expects 50-80 basis points (bps) cross-currency headwinds on a sequential basis for IT stocks under its coverage.

IT Sector Q3 Margins

Cross-currency headwind is expected to partially erode the benefit of rupee depreciation on IT companies’ margins during the October-December quarter. Hence, margins are likely to be stable outside of wage impact.

Motilal Oswal expects margin declines for Infosys due to seasonally weak H2 and furloughs, and LTIMindtree due to wage hike. Growth leverage in H2 for select companies like Coforge, L&T Technology Services and Cyient, and cost optimization benefits could help offset some of this impact.

“We believe a more measured hiring approach in light of only gradual improvements in demand, and a strong USD versus INR should provide margin cushion in FY26,” Motilal Oswal said.

Here’s how top IT companies are expected to perform in Q3FY25:

TCS Q3 Results Preview

TCS, the largest IT services company in India, is expected to see a subdued growth at 0.4% QoQ CC. TCS Q3 revenue is likely to be impacted by furloughs; however, client-specific challenges may normalize during the quarter.

TCS Q3 EBIT margin may improve by 40 bps, driven by talent development, training, and operational efficiency. The deal pipeline should remain healthy. There is some good momentum in BFSI, but weakness in UK/Europe and manufacturing needs to be monitored. Outlook on near-term demand & pricing environment, BFSI, and deal wins are key monitorables, Motilal Oswal said.

Infosys Q3 Results Preview

Infosys Q3 revenue growth is likely to be 1.0% QoQ CC, impacted by seasonal furloughs. The brokerage firm expects H2 to be weaker than H1 as growth was partially front-ended. Operating margin of Infosys is expected to dip by 30 bps due to furloughs, offset by tailwinds from pricing improvements, sub-con cost optimization, and Project Maximus, with a projected margin of 20.8%.

However, the brokerage firm expects deal TCV to remain robust in Q3, and demand commentary to improve. It expects flow business to recover in CY25, aiding growth. Infosys is expected to maintain its guidance of 3.75% to 4.5% for the full year.

HCL Technologies Q3 Results Preview

HCL Technologies is expected to post 3.7% QoQ CC growth, driven by seasonal tailwinds from renewals in its products business. Its margin is estimated to grow by 50 bps QoQ, led by a seasonally strong quarter for the software business and operating leverage, despite a 65-80 bps wage hike impact and furloughs.

While ER&D and manufacturing could continue to be soft owing to challenges from the German automotive sector, a revival in Hi-tech discretionary spending is anticipated. We expect the company to retain its FY25 revenue growth guidance of 3.5-5%, Motilal Oswal said.

Wipro Q3 Results Preview

Wipro is estimated to clock a revenue decline of 1.0% QoQ CC in Q3FY25, hurt by softness in Europe, Communications, and Manufacturing, along with furloughs and fewer working days. IT service margins are expected to dip by 40 bps due to wage hikes. Traditional levers like utilization and offshoring, along with G&A optimization, should offset the impact in 3Q.

Among Tier-I players, Motilal Oswal prefers LTIMindtree and among Tier-II players, its top pick is Coforge.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.