IT companies' revenue revival seen delayed to FY26

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focus of IT companies on cost rationalization. But that has not helped contain earnings downgrades. Putting everything together, a significant turnaround in revenue growth is not expected before FY26.

“Most of the companies are banking on growth in H2FY25E thereby pushing growth expectation to FY26E. Consequently, we have cut our Revenue and earnings per share estimates by 4% & 3% for FY25E in large cap and by 3% & 7% for FY25E in midcaps," said IDBI Capital Markets report. Amid this gloom, can anything bring comfort to investors? Interest rate cuts by the US Federal Reserve can offer some respite.

Expectations are that a loose monetary policy would come as a boost to clients in the BFSI sector giving them confidence about macro stability and inflation trajectory. This, in turn, would bring back discretionary IT demand as clients become more willing to spend on technology projects and upgrading. The European Central Bank recently cut the key policy rate by 25 basis points.

Additionally, the US presidential elections, likely towards the end of 2024, are worth tracking, mainly for any changes in H1-B visa rules. Meanwhile, so far in 2024, the Nifty IT index has declined by nearly 3%, lagging the 7% gain in the Nifty 50. In effect, valuation multiples of tier-1 and tier-2 companies have further cooled-off.