IT sector Q4 results preview: Outlook pessimistic as growth remains muted

The new financial year has brought new challenges for the Indian IT industry, as steep tariffs imposed by US President Donald Trump may impact the sector’s growth rate and clip it to around mid-single digits.

Indian IT companies will begin announcing the performance for the fourth quarter of FY25, starting with Tata Consultancy Services (TCS) on April 10. However, the mood is quite somber as the trade war between the US and China, and 27% tariffs imposed on India, is expected to stunt the sector’s growth in the new fiscal year and has evaporated any chances of revival.

The tariffs have thrown the markets into turmoil as traders expect the US can potentially enter recession this year. This is not good news for Indian IT companies, as they generate more than 50% of their revenues from that region.

In addition, the expansion of global capability centres (GCCs) in India and new technologies like artificial intelligence and GenAI have raised more questions on the growth outlook for Indian IT companies.

In its note, brokerage house HSBC Securities and Capital Markets said, “We continue to factor in mid-single-digit USD growth for the sector over the medium to long term, led by 2-3% market growth and the rest through market share gains.”

“Even in FY26, we expect 4-5% growth across large companies, led by a low base of two years and stability in the macro outlook in the US and European market through the year,” it noted.

Even for the fourth quarter of FY25, the performance of the Indian IT companies is expected to be muted largely due to the pervasive uncertainty in the US economy and a weaker outlook in Europe. The growth in dollar terms for the quarter is expected to be flat. On a positive note, operating profit margins may be stable or show a marginal improvement, primarily due to the weakening rupee.

Kotak Institutional Equities said in a note, “The deterioration in the macro environment will weigh on 4QFY25 numbers and FY2026E guidance. We expect a sequential revenue decline for all large IT companies for the March 2025 quarter due to seasonal weakness, lower billing days and marginal deterioration in demand.”

Given this scenario, it is very unlikely that Indian IT companies will project a positive outlook for the coming months as they are more likely to be in a wait-and-watch mode.

Emkay Securities said, “There is an increased probability of slowdown/recession in the US with implementation of tariffs expected to impact growth and tech spending, particularly discretionary spending. BFSI has seen recovery, though one needs to monitor risks emerging from elevated interest rates, potential slowdown/recession in the US, and weaker growth outside the US to gain confidence in the sustainability of recovery trends.”

According to Emkay Securities, the priority among the customers is cost takeouts, and this has led to a competitive pricing environment, which has been the status quo. In addition, there is also a constraint on enterprises' spending on technology.

The bottom line is that the uncertainty in the global macroeconomic environment doesn’t seem to be ending anytime soon, and this has a serious overhang on the Indian IT companies.

According to BNP Paribas, the FY26 Indian IT services revenue growth will likely be flat on a year-on-year basis.

HSBC said, “We anticipate a prolonged period of range-bound returns for the sector. This is similar to 2014-18, when IT index returns were in the mid-single digits.”