Indian IT Companies Set to Kick Off Q3 FY25 From Tomorrow January 9, 2025

Indian IT companies are gearing up to announce their December quarter earnings, with Tata Consultancy Services (TCS) set to lead the pack on Thursday, January 9, 2025. The quarter, often marked by seasonal challenges due to furloughs, is not expected to deliver robust growth. However, specific trends and updates from major players will remain in focus.

HCLTech Expected to Lead Growth Among Large Caps

Among Nifty 50 IT stocks, HCLTech is projected to deliver the highest quarter-on-quarter growth at 4% on a constant currency basis. This performance will be driven by the seasonal strength of its products business. Aside from HCLTech, only LTIMindtree is expected to achieve growth close to 1%, while other large-cap IT firms are likely to report subdued numbers.

HCLTech might also raise its organic revenue growth guidance from 3.5%-5% to a range of 4%-5% or even 4.5%-5%. However, its EBIT margin guidance is expected to remain between 18%-19%.

Infosys Guidance in Spotlight

Investors will also watch Infosys closely to see if it raises its full-year revenue guidance, though its EBIT margin guidance of 20%-22% is expected to remain unchanged.

With the sector showing signs of stabilisation, this earnings season will provide critical insights into the future trajectory of Indian IT companies.

Midcaps to Outperform Yet Again

Midcap IT players Persistent Systems and Coforge are likely to continue their strong performance with growth of 4%-5% on a constant currency basis. Both companies were top gainers on the Nifty IT index in 2024, with Persistent Systems delivering a 70% gain and Coforge returning 60%.

For Wipro, the company’s fourth-quarter guidance is expected to range from -0.5% to 1.5% in constant currency terms. Despite cuts to earnings estimates, Wipro saw a 30% gain in 2024, with its Price-to-Earnings (P/E) multiple re-rated to 24.7x from 19.7x the previous year.

Key Focus Areas for the Quarter

Investors and analysts will closely monitor several factors during this earnings season:

1. Recovery in Discretionary Spends: Signs of improvement in discretionary spending will be a key indicator of demand recovery.
2. Sectoral Recovery: Particular attention will be paid to stressed sectors such as telecom and manufacturing for signs of revival.
3. Gen AI as a Growth Driver: The role of generative AI in driving new growth opportunities will be assessed.
4. Client Budgets and Deal Wins: Updates on client budgets and new deal wins, which have been muted recently, will be crucial.
5. Hiring Trends: Any pick-up in hiring activity will indicate optimism about future demand.

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