With the fiscal third quarter earnings season all set to commence this week, brokerage firms said that the Indian IT services sector is expected to post a mixed performance during the seasonally weak quarter. Q3 is traditionally considered weak due to seasonal furloughs which, per analysts, is expected to weigh down the IT sector’s growth. JM Financial said, “Q3FY25 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. We expect a muted (0.5)-1.4 per cent cc QoQ growth for large-caps (ex-HCL). HCL’s growth should however be stronger (5.5 per cent cc QoQ) on specific factors (software sales, in-organic). We expect 10-50 bps QoQ margin expansion across the top-5.”
Motilal Oswal Financial Services (MOFSL) said, “After a decent Q2, we expect seasonal furloughs to weigh on growth for the sector in Q3FY25. That said, looking beyond seasonality, macro uncertainty is gradually easing and we expect the outlook for technology spending to improve in CY25. While the initial phase of recovery in H1FY25 was sluggish, we now see clear signs of an acceleration. Recovery appears to be expanding beyond US BFSI—which continues to strengthen—into additional industry verticals such as Hi-Tech, which is recovering ahead of schedule.” It further added that the most important catalyst for the sector now would come after Q3FY25, when client budgets for CY25 would be finalized and the magnitude of change in client behavior would become clearer.
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According to analysis by brokerage firms, Tier 1 IT companies like TCS, Infosys, and HCL Tech are expected to post modest growth in Q3 and tier 2 firms such as Coforge are likely to show stronger sequential revenue growth, driven by effective operational execution. JM Financial stated that Persistent Systems and Coforge among mid-caps are expected to outpace larger peers again.
Elara Capital also maintained that HCL Tech,
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