TCS Likely To See Soft Business, Infosys To Increase Guidance — What Analysts Expect From IT In Q2

Tata Consultancy Services Ltd. will kick off the second quarter earnings season for the information technology sector on Oct. 10. Discretionary demand trends and the green shoots especially in the banking space would be in focus as they contribute to majority of IT companies' revenues.

Even as the July-September period tends to be a strong quarter for the sector, analysts expect TCS to be a laggard, while Infosys Ltd. and LTIMindtree Ltd. are seen leading revenue growth.

The market could find it difficult to support the current valuations of the IT sector, according to CLSA

Here is a look at what analysts have to say.

TCS

The Tata-owned IT major had told clients a few weeks back that the second quarter will be soft with most business coming in from India, which was 7.5% of total revenue in the first quarter.

CLSA sees further downside to the second quarter sequential revenue growth forecast of 1.8% in constant currency terms, given a sharp ramp up in BSNL contracts post the conclusion of central elections.

Bank of America says that first-quarter demand trends are not expected to carry forward in this quarter, especially for developed markets, like US and UK.

Growth disappointments are possible at TCS, according to Ambit Capital.

What to watch out for:

• Reason for absence of growth, excluding India.

• Qualitative commentary for margin and growth guidance.

• Revival in the banking space.

Also Read: TCS Q2 Results Live Updates

Infosys 

Infosys will report its earnings on the Oct. 17. Within large caps, Morgan Stanley expects Infosys to lead revenue growth by reporting organic constant currency sequential revenue growth of 2.8%. While, BofA expects this kind of revenue growth, including the inorganic growth.

Motilal Oswal sees the company's operating margin to inch down by 80bps, owing to reversal of one-offs, large deal investments and decline in utilisation.

In terms of guidance, Bank of America, Morgan Stanley and Motilal Oswal expect Infosys to upgrade its full year guidance by 50 basis points, while Ambit Capital expects it to maintain it. Infosys has guided for revenue growth of 3-4% for FY25.

What to watch out for:

• Guidance update for fiscal 2025.

• Wage hike decisions, likely from third quarter.

• Deal ramp up trajectory.

HCLTech

HCL Technologies Ltd. will report its second quarter results on Oct. 14. Morgan Stanley expects HCLTech to report 0.4% sequential revenue growth in constant currency terms.

BofA expects it to report 1.1% sequential growth for the services segment. Revenue is expected to be impacted due to divestment of State street by 80 basis points, according to the brokerage.

BofA, Ambit Capital and Morgan Stanley expect the company to maintain its fiscal 2025 guidance. HCLTech had guided for 3-5% of revenue growth for the financial year.

The company might disappoint on margins, according to Ambit.

What to watch out for:

• Fiscal 2025 guidance update.

• Impact of divestment from State street.

• Wage hike plans and its impact on margins.

Wipro

Wipro Ltd. will report its results on Oct. 17. BofA and Morgan Stanley expect Wipro to guide for constant currency revenue growth of −0.5% to 1.5% for third quarter, on the back of healthy deal wins.

Wage hike could impact one month margins in the second quarter and there could be full impact from Q3, according to Morgan Stanley.

What to watch out for:

• Third quarter revenue guidance.

• Impact of wage hike in second quarter.

• Steps towards the long term plan under the new management.

• Demand trajectory in the consulting business Capco.

Tech Mahindra 

The risk level for Tech Mahindra continues to increase with the stock now pricing more than the fiscal 2027 target margin, BofA said.

The company will report its results on Oct. 19.

In terms of margin expansion, CLSA is most negative on Tech Mahindra among its own IT coverage, because of its aggressive expansionary mode.

While Tech Mahindra is under pressure because it earns most of its revenue from the telecommunications vertical, which has been under pressure, its reliance on this vertical is to be watched out for.

What to watch out for:

• Growth and share in verticals other than communications.

• Steps taken to achieve the guided 15% Ebit margin by fiscal 2027.

• Wage hike plans and its impact on margins.

LTIMindtree

LTIMindtree has not yet declared when it will announce its second quarter results. The company witnessed green shoots in the demand environment, management had said last quarter. But a few weeks ago, it told investors these green shoots might not translate into revenue soon enough.

CLSA remains most positive on LTIMindtree among its own IT coverage, due to positive seasonality with top account Microsoft, which ramps up strongly in the July-September quarter every year, it said.

Motilal Oswal Financial Services Ltd. expects margins to see a sequential pickup of 80bp, due to absence of wage hikes and better operating leverage.

What to watch out for:

• Demand commentary and margin trajectory.

• Performance of BFSI vertical.