Indian IT Sector Prepares for Modest Growth in Q3 FY25: Report
As the quarterly results season approaches, the Indian IT services sector is gearing up for a mixed performance in Q3 of FY25, traditionally a slower period due to seasonal furloughs, according to a report by Centrum. The industry is expected to see modest growth, with Tier 1 companies such as TCS, Infosys, and HCL Tech showing relatively subdued revenue growth, while Tier 2 firms like Coforge are likely to perform better, owing to efficient operational execution.
The report forecasts that the revenue growth for Tier 1 IT companies will range from a decline of 0.8% to a rise of 3.3% quarter-on-quarter (QoQ) in USD terms. Specifically, TCS is expected to see a decrease of 0.8%, Infosys may remain flat, while HCL Tech is projected to see the highest growth among the Tier 1 companies at 3.3%. On the other hand, Wipro and Tech Mahindra are anticipated to experience a decline in their revenues by 1.5% and 0.4%, respectively.
Tier 2 companies are expected to fare slightly better, with revenue growth ranging from 0.1% to 3.8% QoQ in USD terms. Among the Tier 2 players, Coforge stands out as one of the top performers, likely to report solid revenue growth, reflecting strong operational execution.
Despite the modest revenue expectations, operating margins for both Tier 1 and Tier 2 companies are anticipated to see a slight improvement. However, companies will continue to face challenges, including wage hikes and evolving client demands. Insights from management teams on demand trends, revenue guidance, and hiring strategies will be critical for understanding the sector’s future trajectory.
The report highlights that IT companies are focusing on improving operating margins by implementing measures such as reducing subcontracting costs, enhancing the employee pyramid, and managing wage hikes.
While the broader sector continues its recovery from a downturn, there are positive signals from certain sectors. Demand for IT services is showing signs of gradual improvement, especially in key verticals like Banking, Financial Services, and Insurance (BFSI), along with Technology, Media, and Telecom (TMT). The Manufacturing and Healthcare sectors are also displaying resilience, contributing to steady growth across the industry.
A noteworthy development is the anticipated positive trend in the conversion of Total Contract Value (TCV) to revenue, bolstered by a ramp-up in new deals and reduced deal slippages when compared to FY24.
Furthermore, IT firms are increasingly focusing on improving utilization rates, productivity, and stabilizing employee attrition. The sector is also benefiting from a more balanced offshore revenue mix, which has returned to stability after the pandemic disruptions.
Looking forward, the report points out the promising opportunities in generative AI solutions, which are expected to be a significant driver of incremental business growth in the medium term. As the IT services sector continues to recover, a strong emphasis on operational excellence will likely help sustain its gradual upward trajectory.
