Driven by a stable demand environment with no further cuts in IT spending, the IT industry revenue growth in the second quarter is expected to be ‘decent’. However, it may disappoint elevated expectations.
“The growth is still muted. It is not extraordinarily exciting. Too much of changes are happening, and customers are cautious about their spending. The industry expects to grow better than last year,” a senior IT industry leader, who preferred not to be quoted citing the silent period, told businessline.
IT analysts believe that despite some momentum in BFSI, healthcare, and manufacturing, the delayed ramp-up of large deals is likely to push the growth story to the second half of the financial year.
The IT giants such as TCS, Infosys and HCL Tech, are expected to report revenue growth in the range of 5-6 per cent in the quarter, while the overall industry is expected to grow by no less than 5 per cent year-on-year.
The industry, however, relies heavily on the board meetings that are generally held in the fourth quarter. During the quarter, clients finalise their budgets for IT spending for the financial year 2025-26.
IT industry watchers note that the recovery will be gradual and could be initially restricted to some pockets such as banking space in the US.
The healthcare and manufacturing segments would continue to shoulder the growth burden for the industry, while retail and hi-tech are seeing some softness’
“We expect a growth of 5.1 per cent in revenues and 5.3 per cent in net profit for the quarter (for the companies it tracks),” a Motilal Oswal report on the IT earnings preview for the quarter stated.
It foresees pressures on EBIT margins for TCS. “The margins might slightly decline by 20 bps quarter-on-quarter, largely due to the BSNL deal ramp-up and investments made in talent development and training,” it said.
Macroeconomic uncertainties
“The delay in decision-making due to macro uncertainties continues to hinder a meaningful pick-up in growth momentum. Margin performance is likely to remain stable or show sequential improvement, except for companies where wage hikes are implemented,” an analyst with Emkay Global Financial Services said.
“Margin performance is likely to improve sequentially, except for a few companies implementing wage hikes in the second quarter. The absence of visa costs and cost-optimisation measures would bolster margin,” it said.
An analyst with IDBI Capital felt that Gen AI deals were gaining significant traction along with transformational ones and becoming an integral part of the IT deals. “We firmly believe that Gen AI has a multi-year tailwind,” he said.