The Indian IT services sector is gearing up for a mixed performance as the third-quarter results of FY25 approach, with Tier 1 IT companies like TCS, Infosys, and HCL Tech expected to post modest growth. Traditionally, Q3 is a weaker period due to seasonal furloughs, as noted in a recent report by Centrum.
While Tier 1 players are predicted to experience revenue growth between 0.8% to 3.3% QoQ in USD terms, with TCS and Infosys seeing negligible or slight declines, HCL Tech is expected to report a strong 3.3% growth. In contrast, Tier 2 companies, such as Coforge, are projected to show stronger sequential revenue growth, driven by effective operational execution.
Despite the recovery in the broader sector, performance variations will be seen across individual firms. Operating margins for both Tier 1 and Tier 2 companies are expected to improve slightly, although challenges like wage hikes and changing client demands may persist. Key factors such as demand trends, revenue guidance, and hiring strategies will be crucial in shaping the industry’s trajectory.
The demand for IT services in India is gradually improving, with significant recovery in verticals such as Banking, Financial Services, and Insurance (BFSI), as well as Technology, Media, and Telecom (TMT). The Manufacturing and Healthcare sectors also continue to show resilience, contributing to the sector’s growth.
Looking ahead, a positive trend is anticipated in the conversion of Total Contract Value (TCV) to revenue, supported by new deal ramp-ups and reduced deal slippages compared to FY24. IT companies are also focusing on improving utilization rates, enhancing productivity, and stabilizing employee attrition.
Generative AI solutions are expected to play a significant role in driving medium-term growth, with a strong focus on operational excellence helping the IT services sector continue its gradual upward trajectory despite ongoing challenges.
