IT: Forget Q3 results, focus on commentary

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Subscribe to enjoy similar stories. The December quarter (Q3FY25) is seasonally weak for the Indian IT sector due to furloughs and fewer working days. Thus, no fireworks are anticipated.

Since expectations are already low, Q3 results would offer little help in gauging demand momentum. Even so, wide-held expectations are that year-on-year (y-o-y) revenue growth will start gradually improving from Q3FY25 onwards, aided by lower project cancellations, the beginning of the US Federal Reserve's interest rate cut cycle, and the end of uncertainties surrounding the US election. However, sequential performance will be muted.

“We expect aggregate revenue growth for our coverage to moderate slightly in Q3 to 0.7% quarter-on-quarter (q-o-q) constant currency (3.9% y-o-y constant currency), given the usual furloughs," said a 31 December Jefferies India report. The divergence between tier-1 and tier-2 would persist, with the latter continuing to outpace the former in revenue growth. However, the Street is more concerned about the outlook for discretionary IT demand, budget indicators for 2025, and prospects of short-duration deals, which have been muted lately.

Segment-wise, while some recovery is likely in the banking financial services and insurance (BFSI) vertical, weakness in manufacturing and retail could hurt. Cost optimization deals are expected to remain a priority for clients. Region-wise, Europe could remain a drag; the sustenance of green shoots in the North American market would be closely watched.

Global IT major Accenture has not seen a material change in demand, it said in its earnings call in December. Accenture’s result is often seen as an indicator of the future performance of tier-1 Indian IT firms. It also