IT companies may have subdued revenue growth in Q3 FY25 because of cautious spending by clients: Report

New Delhi [India], December 31 (ANI): The revenue growth for India's leading IT services companies is expected to remain subdued in the third quarter of FY25 due to the impact of furloughs and cautious client spending, according to a report by JM Financial.
The report highlighted that the constant currency (cc) revenue growth for large-cap IT firms is projected to range between -0.5 per cent and 5.5 per cent quarter-on-quarter (QoQ), while dollar-denominated revenue growth is likely to lag by 30-130 basis points due to currency fluctuations.
It said, "3QFY25 will be indented by furloughs. Its impact will likely be similar to last years'. That is hardly encouraging given furloughs were deeper (more clients) and longer last time around. Discretionary spend is restricted to few pockets still."
In the large-cap companies, the report stated that HCL Technologies (HCLT) is expected to outperform its peers with 5.5 per5 cent cc QoQ growth, primarily driven by a 25 per cent seasonal uptick in software sales.
Additionally, its corporate training group (CTG) segment is likely to contribute 60 basis points to its growth.
In contrast, Tata Consultancy Services (TCS) may post flat cc growth as its Bharat Sanchar Nigam Limited (BSNL) project becomes a headwind. Infosys is anticipated to perform towards the higher end of its guidance range, with an expected growth rate of -0.5 per cent to +0.5 per cent QoQ.
Among mid-cap IT firms, Persistent Systems (PSYS) and Coforge are poised to achieve strong growth exceeding 4 per cent in cc terms, supported by ramp-ups in large deals. However, Mphasis is likely to experience a sharper impact from furloughs, which could weigh heavily on its performance.
The report warned that the impact of furloughs this quarter is expected to mirror the previous year, when they were deeper and longer, involving more clients. This outlook raises concerns as discretionary spending continues to be restricted to select areas.
However, the report emphasized that third-quarter performance is not a definitive reflection of underlying demand in the IT sector. Metrics such as client budgets, deal wins, and short-duration deal activity provide better indicators of future growth prospects.
The Federal Reserve's hawkish monetary policy stance is also likely to influence client budgets, potentially impacting spending decisions in the near term.
It added, "3Q performance is seldom a reflection of underlying demand. Client budgets, deal wins and uptick in short duration deals would be better gauge. Fed's recent hawkish tone might influence client budgets".
While the near-term challenges persist, the report advises focusing on long-term trends, including deal pipelines and client spending patterns.
These factors will play a crucial role in shaping the performance of IT services companies in the coming quarters. (ANI)