New Delhi [India]: The recovery of the information technology (IT) sector is likely to be prolonged due to uncertainties surrounding rate cuts and escalating tariff wars, according to a report by Mirae Asset Sharekhan.
In the short term, both global and domestic factors will influence the IT sector’s recovery. However, the report maintains a positive medium- and long-term outlook, as enterprises are expected to gradually increase discretionary spending.
“Management commentaries reflect a gradually improving macro environment with green shoots emerging in discretionary spending, especially in Banking, Financial Services, and Insurance (BFSI), while the deal pipeline remains strong,” the report stated.
IT companies are expected to undertake larger transformational programs to remain relevant in a rapidly evolving, AI-driven technological landscape.
Regarding revenue trends, the report highlighted that Tier-1 IT companies experienced quarter-on-quarter (QoQ) constant currency (CC) revenue growth of 0-3.8%, impacted by seasonality and furloughs. In contrast, many Tier-2 IT firms outperformed Q3 trends, demonstrating greater resilience and stronger revenue growth.
Most Tier-1 IT companies reported an improvement in EBIT margins, primarily due to operational efficiencies, despite wage hikes affecting some firms. Meanwhile, Tier-2 IT companies showed mixed trends in EBIT margins.
Deal win momentum, which measures the speed and positive trend of closing sales deals, has improved for most IT service firms on a year-on-year basis, the report noted.
Looking ahead, the report identified key risks for the next quarter, including rupee appreciation, adverse cross-currency movements, the contagion effect of the banking crisis, persistent macroeconomic headwinds, and the potential for a U.S. recession, all of which could slow down technology spending.