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The Indian IT sector appears to be extending its subdued performance, as seen by the recent Q3 FY25 results.
While the global slowdown is a key factor pulling down the sector's growth, shifting client priorities and muted growth in BFSI (banking, financial services and insurance) and technology also played a spoilsport. However, emerging opportunities in generative AI, cloud computing and cost optimisation provide some hope.
How are India's IT titans holding up?
We look at how the top four IT companies (in terms of market cap) - TCS (Tata Consultancy Services) , Infosys , HCL Technologies and Wipro - have fared after the third quarter. Given the macroeconomic headwinds and tempered growth in certain sectors, these companies have posted single-digit growth numbers. Though TCS and Infosys reported strong operating profit growth of 10.3 per cent and 11.9 per cent, respectively, this can largely be attributed to the rupee's depreciation against the dollar.
Sliding rupee, better numbers
The rupee's depreciation masked an otherwise muted performance
| Companies | Revenue YoY | Operating profit YoY | PAT YoY |
|---|---|---|---|
| Tata Consultancy Services | 5.6 | 10.3 | 12.1 |
| Infosys | 7.6 | 11.9 | 11.6 |
| HCL Technologies | 5.1 | 3.1 | 5.6 |
| Wipro | 0.5 | 8.5 | 24.6 |
|
Data is for Q3 FY25 EBIT is earnings before interest and tax PAT is profit after tax |
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Let's break down each company's performance to check how they fared last quarter.
TCS
The company reported a 4.5 per cent YoY (year-on-year) revenue growth (in terms of constant currency). It also declared a special dividend of Rs 66 per share and an interim dividend of Rs 10 per share.
The revenue growth was primarily supported by an impressive $10.2 billion total contract value (TCV), which included significant wins in BFSI and consumer sectors. As a result, TCS maintains a strong deal pipeline, assuring investors of stability in the medium term.
Moving forward, the management anticipates a recovery in discretionary spending, especially across BFSI and retail, albeit with cautious optimism. In addition, it expects generative AI and automation to be key growth drivers, helping enhance cost efficiency and optimise operations.
Infosys
Infosys revised its FY25 revenue estimates to 4.5-5 per cent (from 3.5-4.5 per cent earlier). Double-digit growth in Europe (up 12 per cent YoY) and manufacturing played a big role. Financial services and retail also made a comeback in the US, thanks to easing discretionary spending. This is reflected in its revenue growth, which grew by 6 per cent YoY in constant currency terms.
Yet, not all is gloom and doom. The company signed deals worth Rs 20,800 crore, of which 63 per cent are from new clients. Investments in generative AI programs, including the Topaz platform, are also expected to fuel growth.
HCL Technologies
HCL seems to be on a strong growth trajectory. Not only did it deliver a decent YoY revenue growth of 4.1 per cent, its engineering and R&D services segment grew 5.4 per cent sequentially. It has also announced an interim dividend of Rs 18 per share.
Additionally, HCL achieved an operating margin of 19.5 per cent and saw increased traction in BFSI and telecom. Factors like an emphasis on generative AI, cloud partnerships and software-as-a-service offerings strengthened the company's growth trajectory. Subsequently, its management expressed confidence in its near-all-time-high deal pipeline and the ability to capitalise on AI-led transformations across industries.
Wipro
The company has largely had an underwhelming third quarter, with revenue growing only by 0.1 per cent QoQ and declining by 0.7 per cent YoY (in terms of constant currency). It has announced an interim dividend of Rs 6 per share.
On the bright side, Wipro's operating margins reached a 12-quarter high of 17.5 per cent, thanks to rigorous cost optimisation and strong execution. The company also reported a TCV of $3.5 billion and highlighted robust performance in BFSI and healthcare.
The company anticipates revenue growth from -1 to 1 per cent in constant currency for the upcoming quarter, reflecting cautious client spending trends.
Our take
Though near-term challenges and macroeconomic uncertainties persist, the Indian IT sector remains a compelling long-term investment option. Factors such as strong deal pipelines and increasing adoption of generative AI, cloud and automation offer promising avenues for growth.
That said, investors should focus on companies with robust fundamentals, diversified portfolios and clear strategies for leveraging next-generation technologies.
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Disclaimer: This is not a stock recommendation. Investors should do their due diligence before making any investment decision.
Also read: 8 small and micro-cap stocks that eroded investor wealth in 2024
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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