Indian IT Sector to see subdued growth in Q3, recovery likely in Q4FY25

The IT sector is expected to witness subdued growth in the third quarter of FY25, primarily due to seasonal factors, according to a report by Centrum. However, the report noted that a recovery is likely in the fourth quarter as companies begin to ramp up execution of recently signed deals.

The report highlighted that the demand for IT services has been impacted by macroeconomic uncertainties, with clients maintaining a cautious stance on discretionary spending."The revenue growth would remain modest in Q3FY25 on account of Q3 seasonality with growth picking up from Q4FY25" the report said.

Despite these challenges, the report noted that the outlook for the medium term remains optimistic, driven by the increasing adoption of new-age technologies like artificial intelligence (AI), digital solutions, and cloud migration.

The report noted that the BFSI (banking, financial services, and insurance) segment is showing some initial signs of recovery, providing hope for improved demand in the coming quarters. IT companies are also focusing on strengthening their capabilities in AI and machine learning (ML) to meet the growing demand for generative AI-based solutions.

"We expect that there would be rising demand for Generative AI based solutions as they are expected to lead to significant productivity benefit for clients across industries" the report added. It added that these solutions are expected to significantly enhance productivity across industries, creating opportunities for the sector.

In terms of financial performance, the report highlighted that IT companies reported a slight improvement in Q2FY25, supported by the ramp-up of recently signed deals. It noted that operating margins and revenue growth were broadly in line with expectations.

Cloud-related projects continue to dominate deal pipelines, reflecting their critical role in digital transformation efforts. Overall, while near-term challenges persist, the report stated that the IT sector is poised for a recovery, led by advancements in technology and increasing client interest in digital innovation.

It said, "The continued slowdown in discretionary expenditure has led to moderation in near term demand environment. However, there are certain green shoots in demand environment especially in the BFSI segment".

The momentum is expected to strengthen as the macroeconomic environment stabilizes and new deals begin to yield results. The Nifty IT index declined by more than 2.5 per cent on Monday at the time of filing this report.

The shares of major IT companies also declined, with TCS down by 3 per cent, Tech Mahindra down by more than 2 per cent, and Infosys down by more than 3 per cent.