IT services companies are projected to see a gradual recovery in the October-December quarter, driven by stronger demand in the banking, financial services, and insurance (BFSI) sector, as well as a reduction in project cancellations, shorter furlough periods, and easing macroeconomic uncertainties.
While growth is expected to remain modest on a sequential basis, the outlook for individual companies and total contract value (TCV) is notably better than the previous year, according to analysts.
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The key drivers of recovery include increasing digital investments in financial services, continued adoption of cloud and data services, and the resolution of uncertainties surrounding elections in developed markets. According to Kotak Institutional Equities, “Furloughs during the December quarter are significantly lower than last year, supporting growth momentum”.
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Mid-tier firms such as Coforge and Persistent Systems are poised to lead the growth trajectory with sequential revenue increases of 4.7%, while HCLTech is expected to post a solid 4.4% rise. However, industry majors like TCS and Infosys are anticipated to report much slower growth, with rates dipping below 1%. LTIMindtree, despite challenges in the hi-tech vertical, is expected to show stable growth, on the back of its diversified portfolio. Analysts point to the BFSI sector’s robust performance as a bright spot, though they caution that other verticals remain uncertain.
“Momentum in BFSI is strong, but we are less confident about growth in non-financial segments,” noted industry analysts.
The depreciation of the rupee against the dollar during Q3 is expected to provide a slight boost to IT companies, as the majority of their revenue comes from the US. However, analysts warn that the currency volatility could introduce margin fluctuations, complicating financial assessments. Deal activity, however, remains moderate. While TCV figures have slowed, largely due to a decline in mega-deals, there are positive signs in annual contract value (ACV) figures, which reflect steady progress in ongoing projects. Infosys is expected to report large-deal TCVs of around $3 billion,
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