Q4 earnings preview: IT companies to report modest growth in Q4FY25

Shares of Indian IT companies have entered bearish territory as the NIFTY IT index has slumped 22.67% or 9,826 points from its closing of 43,337.80 on December 31, data from the National Stock Exchange (NSE) showed.

Rising uncertainty due to restrictive US trade policies and concerns over a slowdown in the US economic growth rate have impacted sentiment for the Indian IT services sector.

The IT sector is expected to post a modest performance in the March quarter, with constant currency (CC) revenue growth ranging between -1% to 0.6% for Tier I companies like Infosys, Tata Consultancy Services, Wipro, HCL Technologies, Tech Mahindra and LTI Mindtree and between 0% to 4.5% for Tier II companies such as L&T Technology Services, Coforge, Persistent Systems, Mphasis and KPIT Technologies.

The slowdown is attributed to fewer billing days, delayed deal ramp-ups, AI-driven productivity enhancements and currency headwinds, financial services company Philip Capital said in a report.

Among large-cap IT firms, all major players are expected to report subdued growth. In contrast, midcap firms such as Coforge, Persistent Systems, Mphasis, and L&T Technology Services (LTTS) are likely to outshine their larger peers. Meanwhile, Infosys and Wipro may lag due to weak discretionary spending and sluggish deal closures, Philip Capital said.

Meanwhile, elevated uncertainty in the US and European markets is likely to delay discretionary demand revival longer than anticipated earlier, Philip Capital noted. Companies with high exposure to manufacturing, retail, consumer packaged goods (CPG), and logistics are expected to face the first wave of impact from US tariff hikes, potentially denting FY26 growth prospects, it added.

Despite the muted growth outlook, valuation multiples have corrected. The NIFTY IT index now trades at 23.5 times earnings, compared to its five-year and ten-year averages of 25 times and 19 times, respectively.

Stable deal wins, but wage hikes to impact margins

While mega-deal activity remained subdued, select large deals such as the $1.56 billion Sabre deal for Coforge and the $650 million Phoenix deal for Wipro helped maintain a stable deal pipeline for the IT industry, Philip Capital said. However, wage hikes at Infosys, HCL Tech, Tech Mahindra and LTTS are expected to put pressure on margins. Margins are projected to fluctuate between -20 basis points to 100 basis points due to seasonal factors, rupee depreciation and selective hiring, the financial services firm said.

Expectation of conservative guidance

Amid an uncertain demand environment, management commentary on discretionary spending will be closely watched. Philip Capital expects that Infosys may guide for 2-4% annual constant currency growth in FY26, while HCL Tech is expected to forecast 3-5% constant-currency growth, including contributions from its Hewlett Packard Enterprise (HPE) acquisition. Margin guidance for both firms is expected to remain stable.

Philip Capital has revised its FY26 revenue growth estimates downward by 2-4% for large and mid-cap IT companies along with a 0-9% cut in FY26-27 EPS projections. As a result, the brokerage has also adjusted its target P/E multiples.

A potential US recession remains a key downside risk that could further dampen growth prospects for Indian IT companies in the coming quarters, Philip Capital added.