IT sector Q3 Review: Companies fared better than expected; margins likely to improve in FY25 due to better pricing

Indian IT sector: The Indian IT sector, the shining star of the share market during the coronavirus pandemic, was shrouded in the gloom of uncertainty when an economic slowdown hit the European and American markets post-pandemic. Since Indian IT companies heavily rely on these two markets for their major revenues, their earnings took a hit at the beginning of 2022. With some uncertainties still lingering around the American market and the Russia-Ukraine War still keeping the European market on tenterhooks, the lean phase of the IT sector continues.

The Indian IT sector re-emerged in bits and pieces, with some stocks reaching their 52-week or all-time highs in the last year and a half. However, the broad-based recovery still looks distant given the current global economy.

But after a long phase of docileness, the IT sector seems to be in action.

The December quarter earnings of major IT companies give the impression that stability is around the corner, as per Zee Business research.

Though the recovery of the IT sector is most likely to happen once the US Fed cuts the repo rate and US companies taking Indian IT services become more confident to increase their businesses, the Q3 results of Indian IT companies show that there is improvement in client sentiment, as per the research team.

Analysts say while the US market showed a tense business environment during the December quarter, Indian IT companies saw strong growth in their businesses in the UK and Europe regions.

One of the major factors that shows that IT companies are getting business from foreign markets is the continuous decline in the attrition rate.

As far as the major IT companies are concerned, only Infosys and Wipro's constant currency growth remained weak; the rest showed good performance in a seasonally weak quarter, according to research.

Among others, except LTIMindtree and Mphasis, the rest presented results better than expected.

Analysts say while there is an improvement in the forward visibility of the companies, the price environment is now expected to remain stable.

Along with that, further improvement in margins is expected.

The research team says that the management commentaries of most of the companies were surprisingly positive during the quarter.

While most IT companies cut their earnings guidance, they maintain their margins.

The price environment is now expected to remain stable, and a further improvement in margins is expected, analysts predict.

As far as the outlook for the IT sector is concerned, research expects a good improvement in margins due to better pricing in FY25.