Subdued IT Revenue Growth Forecast Amid Furloughs and Cautious Spending

The third quarter of FY25 is predicted to see limited revenue growth for India's major IT firms due to furloughs and cautious client spending. HCL Technologies is expected to lead with the highest increase, while mid-cap firms like Persistent Systems and Coforge may achieve over 4% growth.

India's leading IT services companies are bracing for subdued revenue growth in the third quarter of FY25, as reported by JM Financial. The study anticipates revenue growth in constant currency (cc) terms among large-cap IT firms to range from -0.5% to 5.5% quarter-on-quarter (QoQ), while dollar-denominated growth is expected to lag by 30-130 basis points due to currency volatility.

Furloughs are set to impact the quarter significantly, with effects mirroring last year's more widespread and extended downtime. Discretionary spending remains concentrated in limited operational pockets. Notably, HCL Technologies is projected to outperform, with a 5.5% cc QoQ growth fueled by robust software sales, while TCS may record flat growth due to its BSNL project headwinds.

Despite concerns about furloughs, mid-cap IT firms like Persistent Systems and Coforge are likely to exceed 4% cc growth attributed to ramp-ups in large deals, whereas Mphasis might suffer a pronounced effect. The report underscores that third-quarter performance is not a true indicator of IT sector demand. It highlights metrics like client budgets and deal activity as better growth predictors and warns of potential impacts from the Federal Reserve's hawkish monetary stance.

(With inputs from agencies.)