With just 10 trading sessions left in the July-December 2024 quarter, global brokerage CLSA has highlighted the improving outlook for India’s leading IT services companies — Tata Consultancy Services (TCS), Infosys, and Wipro. Despite the traditionally weaker third quarter, typically impacted by higher furloughs and lower billable hours, CLSA notes the companies’ optimism about stronger client sentiment in the months ahead.
While Q3 is often a challenging period for IT firms, CLSA is cautiously optimistic about the prospects, particularly in the banking, financial services, and insurance (BFSI) sectors, where it expects the furlough impact to remain similar to last year. The brokerage also foresees a recovery in the US BFSI sector, with growth expected across sub-sectors.
TCS, according to CLSA, is confident that tech budgets will expand in 2025 following the US election outcome, signaling potential for growth in the coming year. Meanwhile, Wipro is expected to see further upside if it announces any changes in capital allocation. However, Infosys faces a weaker second half of the fiscal year, with Q4 expected to be even more challenging than Q3.
IT Sector Performance in 2024
In 2024 (year-to-date), TCS, Infosys, and Wipro have delivered returns of 16%, 27%, and 20%, respectively. While CLSA remains optimistic, other analysts like HSBC have reshuffled their views on the sector, influenced by factors such as the uncertainty around Generative AI and challenges posed by global capability centers (GCC).
HSBC projects industry growth to pick up in FY26, with expectations of 6-7% growth after a sluggish 3-4% in the past two years, primarily driven by a recovery in the US market. However, weak performance in Europe and continued uncertainties around Generative AI are expected to cap upside potential.
Outlook for the IT Sector in 2025
HSBC believes that, despite headwinds, the IT sector is poised to perform in line with the market in 2025, with improving growth expected to attract investor interest. This could lead to a shift of focus from sectors with high valuations but deteriorating demand outlooks.
As of now, the Nifty IT index is trading 0.11% higher at 45,701.95, with continued optimism surrounding the sector’s potential recovery in the coming quarters.
