IT Sector Q4 Results Preview: Subdued Growth Amid Weak Global Macros, Tight Spends — Systematix

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Systematix Report

We expect IT services companies within our coverage to report subdued growth during Q4 FY25 on seasonal weakness and lower discretionary digital transformation spends. Indian IT companies, which are heavily reliant on the US market, continue to face challenges as the US grapples with ongoing macroeconomic uncertainties. Just as the IT sector pinned hopes on a rebound in discretionary spending, Trump-led administration’s ongoing tariff updates, recession fears, cut in IT spends by Elon Musk-led DOGE are posing challenges to the business environment.

As a result, discretionary tech investments and largescale transformation deals are delayed, with clients reallocating their budgets towards cost takeout and vendor consolidation projects.

For Q4 FY25, we expect large-cap IT companies to report 0%-2% QoQ revenue decline in USD terms with the revenues of-

1. Tata Consultancy Services expected to decline due to ramp-down in the BSNL deal,

2. Infosys and HCLTech likely to slip on seasonality, and

3. Wipro, Tech Mahindra, and Sonata Software to fall due to company-specific challenges.

Ebit margins are expected to remain largely stable, except for those impacted by seasonality or wage hikes (Infosys and HCLTech). The Nifty IT P/E multiple has fallen significantly to 26x and trades below its five-year average of 29 times and close to its 10- year average of 23x. While near-term outlook remains tepid, particularly around macro shocks and deal conversion cycles, we are positive on the industry over the medium-to-long term, as enterprises prioritize digital transformational programs to stay competitive in an AI-driven landscape.

The Fed's forecast of two 25bps interest rate cuts by end-2025 could boost demand visibility for FY27.

Key aspects to watch for in Q4:

1. management commentary on recovery in discretionary spending,

2. client budget allocations and any shift in priorities,

3. impact of potential tariff threats,

4. hiring trends for FY26, and

5. progress in AI-driven initiatives and new deal opportunities.

Our target prices for TCS, Infosys, Wipro, HCLTech, Tech Mahindra, and Sonata Software remain unchanged.

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