
Indian IT’s top 5 might end this fiscal year a little better than the last
Summary
- Even as India’s top three are expected to grow better than last year, or at the same pace, challenges emerge for fourth-largest Wipro and fifth-largest Tech Mahindra
India’s largest information technology (IT) services companies are expected to perform marginally better in the current fiscal year compared to the previous one due to higher business from the Americas and growth markets such as Asia, with rise in hiring to match the growth.
According to the guidance given by the companies for the three months ended March 2025, the country’s two largest IT services companies—Tata Consultancy Services Ltd (TCS) and Infosys Ltd—are expected to report higher growth than last year.
Growth at third-largest HCL Technologies Ltd is expected to be flat, whereas fourth-largest Wipro Ltd and fifth-largest Tech Mahindra Ltd are both expected to end the fiscal with a second consecutive full-year revenue decline, albeit not as much as last year.
The optimism of a better FY25 has been reflecting in the hiring trends of Indian IT’s top five.
TCS, Infosys, Wipro and Tech Mahindra increased headcount in April-December 2024, adding a cumulative 17,188 employees. This comes on the backdrop of the top five IT services companies trimming headcount last fiscal by 57,735 in total.
Also read | TCS's outlook lends comfort, but a risk clouds FY26 revenue prospects
Among the top five, only HCL Tech cut headcount by 6,726 in the first nine months. In the same period last fiscal, it had cut the least number of jobs at 1,188.
Growth woes not over
This does not mean Indian IT’s big boys are out of the reflection of last year, when India’s $254 billion industry grew at its slowest pace in more than a quarter of a century.
Iin the April-December 2024 period, TCS and Infosys grew 4.6% and 3.9% year-on-year, respectively. For TCS, which reported its worst third-quarter performance in nine years, this growth came on the back of its growth markets, including the India business that grew 30% from the year-ago period to $1.5 billion as of December 2024.
Growth markets include geographies outside of the Americas and Europe, which are the two biggest markets for homegrown IT service providers.
Infosys’s growth was bolstered by the Americas, which is its biggest cash cow, fetching about 58% of its overall revenue of $4.94 billion revenue as of December 2024. The company’s Americas business grew 4.8% from the year-ago period to $2.88 billion as of the three months through December 2024.
Also read | Infosys investors blow hot and cold on Q3 revenue beat, guidance revision
Hearteningly for investors, the company raised its full-year FY25 guidance for the third time. It now expects to end the year with 5% growth in revenue at best in constant currency terms. This is better than last year when the company’s growth in constant currency terms was flat and 1.9% in reported currency. Constant currency does not take currency fluctuations into account.
There’s more. At least one analyst expects Infosys to outperform TCS in FY25. While Infosys is expected to grow 5%, TCS is expected to clock 4.3% growth, according to Nomura analyst Abhishek Bhandari. This also implies that both TCS and Infosys are expected to report higher revenue growth than last year.
“We believe Infy (Infosys) is one of the best ways to play a potential improvement in discretionary demand in IT services. Strong deal pipeline and improving discretionary demand across multiple verticals is positive, in our view," Bhandari, executive director at Nomura, said in a note dated 17 January.
TCS does not offer revenue guidance.
For third-largest HCL Tech, revenue in the first nine months of the fiscal year grew 5.1% to $10.3 billion. Like the top two, this growth was driven by the Americas and growth markets.
Despite the strong showing, HCL Tech’s growth is expected to be 5% at best in constant currency terms at the end of the 12 months through March 2025, according to the company’s guidance. This means that the company is expected to grow at last year’s pace.
Also read | HCL Tech’s rich valuation clouds re-rating prospects
Even as India’s top three are expected to grow better than last year, or at the same pace, challenges emerge for fourth-largest Wipro and fifth-largest Tech Mahindra, both of which are expected to report a second successive year of revenue decline.
Both Wipro and Tech Mahindra have undergone a change at the top. While Srinivas Pallia was entrusted as the chief executive in April 2024, Mohit Joshi took over as Tech Mahindra CEO in December 2023. Both have been looking to turn around the fortunes of their respective companies, which have been struggling to increase business.
For the nine months ended December 2024, Wipro’s revenue is down 4.2% from the year-ago period to $7.78 billion. The company is expected to end the fourth quarter with IT services revenue between $2.6 billion and $2.66 billion, according to Wipro’s management. It had reported revenue of $2.67 billion in Q4 of the previous fiscal.
So, even if it reports the upper-end of its estimate in the fourth quarter, it is likely to end FY25 with a second consecutive full-year revenue decline.
The guidance by the management hints at -1 to 1% growth for the full year in constant currency terms. However, the decline is not expected to be as sharp as it was last year when Wipro reported a 4.4% decline in constant currency terms to $10.8 billion.
Pallia, who nears a year as chief executive in April, was hopeful of the future. “2024 was marked by macroeconomic challenges. 2025 looks more hopeful and resilient. Our clients are cautiously optimistic, and discretionary spending is slowly coming back," said Pallia, in the company’s post-earnings call with analysts on 17 January.
At Tech Mahindra, the report card was not much different. While the company does not give guidance, its revenue in the nine-month period to December 2024 is just 0.3% lower than the year-ago period, suggesting that a revenue decline is imminent but not as grave as the previous year when the company’s revenue fell 5% to end at $6.23 billion.
The outlook
An uncertain path for each of the country’s largest IT services companies begs the question: If FY26 will be better than FY25, how much better will it actually be?
Also read | After Cognizant, Tech Mahindra goes after former Infosys top talent
Some cause for optimism for India’s largest IT outsourcers is the performance in the Americas, which is the single largest market for homegrown IT services companies. For three of the top five software services companies including Infosys, HCL Tech, and Tech Mahindra, revenue from the Americas grew despite showing a decline last year.
At the core of this renewed optimism is better certainty with respect to the business environment, and rate cuts brought about by the US Federal Reserve.
Most analysts believe that US president-elect Donald Trump will be more business friendly, which could eventually boost growth for Indian IT service providers.
Another bright spot has been the margin performance of these IT services companies, with four of the top five increasing their operating margins in the three months through December 2024. Of the five, HCL Tech has expanded its margins the most by about 90 basis points sequentially to 19.5%. A basis point is one-hundredth of a percentage point.
Also read | Wipro veteran quits for CEO role at smaller firm
Infosys, Wipro and Tech Mahindra reported operating margins of 24.5%, 21.3%, 17.5%, and 10.2%, respectively, in Q3 of FY25, compared to 20.5%, 16%, and 5.4% respectively, in the three months through December 2023.
Only, TCS, which reported operating margin of 24.5% in Q3 of FY25, saw higher margin in the year-ago period at 25%.