The September quarter is unlikely to offer meaningful relief for Indian IT stocks, with weak discretionary spending and continued pressure from artificial intelligence-led efficiency gains expected to keep growth and pricing under pressure.
The cross-read from Accenture suggests that client discretionary spending has not meaningfully improved, raising concerns over the pace of recovery for Indian IT services companies. At the same time, AI-led productivity gains are emerging as a potential headwind for traditional technology services, as clients look to achieve more with fewer resources.
Brokerages will closely track AI revenue, deal wins and the pace of “AI deflation,” the potential pressure on billing and revenue growth as AI improves productivity, during the quarter ended September. BofA Global Research has also warned that the broader IT sector could face guidance cuts.
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TCS, Infosys, HCL Tech, Wipro, Tech Mahindra
Bloomberg estimates point to relatively modest sequential revenue growth for the large IT companies.
Tata Consultancy Services is expected to report 1.04% quarter-on-quarter revenue growth in quarter ended September, while Infosys is estimated to grow 1.92%. HCL Technologies is expected to lead the tier-1 pack with 2.80% growth, followed by Tech Mahindra at 1.67% and Wipro at 0.94%.
On the earnings front, HCL Technologies is expected to report the strongest EBIT growth at 7.06%, followed by Wipro at 4.56%, TCS at 2.82%, Tech Mahindra at 2.45% and Infosys at 2.41%.
Net income growth is estimated at 14.43% for Tech Mahindra, 5.43% for HCL Technologies, 3.29% for TCS and 1.76% for Infosys. Wipro is expected to see a 1.38% decline.
What To Watch
For TCS, investor focus will be on commentary around data centre and AI revenue, along with changes in headcount. The company's ability to translate AI demand into incremental revenue will be closely watched amid broader concerns about AI-led deflation.
Infosys could see a mixed stance on its guidance. While UBS expects the company to retain its existing guidance, Nuvama expects a 100-basis-point cut.
For HCL Technologies, brokerages are expecting a cut to the upper end of its services revenue growth guidance, which currently stands at 1.5%-4.5%.
Wipro could guide for third quarter revenue growth in the range of -2% to 0%, compared with its Q2 guidance of -1.5% to +0.5%.
Tech Mahindra's telecom business is expected to remain a key bright spot, with the vertical also emerging as an outperformer for Accenture. Investors will also focus on the company's margin outlook and its ability to move towards the 15% margin mark.
Midcaps Continue To Outperform
The tier-2 IT segment is expected to remain relatively stronger, with midcap companies continuing to outperform large caps on organic constant-currency revenue growth.
Coforge is expected to lead the pack with sequential revenue growth of 14.85%, followed by Persistent Systems at 6.07% and Mphasis at 4.30%. LTM is estimated to report 1.60% growth. Coforge is also expected to post 27.5% growth in net income, while Persistent Systems and Mphasis are estimated to grow net income by 15.5% and 9.1%, respectively.
For Persistent Systems, investors will focus on the integration roadmap for its Nagarro acquisition and the company's path towards its US$5 billion revenue ambition.
LTM's integration plans for the Randstad-acquired business will be a key focus, while Coforge investors will track the outlook under its new chairperson and deal-booking momentum.
What To Look Out For
The Q2 earnings season is therefore likely to be less about headline growth and more about the quality and sustainability of that growth.
Investors can look for evidence that AI-related demand is translating into new deal wins and revenue, rather than simply improving productivity for clients. Any signs that AI is reducing the amount of work required for traditional services could add to pricing and growth pressures.
With discretionary spending yet to show a meaningful recovery, management commentary on deal pipelines, client budgets, hiring and guidance will be crucial in determining whether the IT sector can regain momentum in the second half of this finacial year.
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