Tariff tensions, uncertainty cast shadow on earnings outlook for leading IT firms

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Analysts are anticipating subdued earnings growth for Tier-I IT companies during the March quarter, while Tier-II players are expected to sustain their outperformance, even as US reciprocal tariffs on trading partners kicked in from April 9.

US President Trump’s imposition of tariffs has reignited concerns of a potential trade war, and investors are closely watching upcoming IT earnings for the guidance and any signs of impact on the business.

The uncertainty also found mention in RBI Governor’s MPC address on April 9, where he said ‘trade frictions’ will dent global growth, and pose new headwinds for inflation.

Street Pricing in A Revenue Dip

Brokerages are projecting a sequential decline in revenue for major IT firms during the March 2025 quarter, attributed to seasonal softness, fewer billing days, and marginal demand deterioration. Additionally, account-specific headwinds are expected to weigh on performance.

For largecap IT, earnings are likely to be under pressure due to a weakening macroeconomic environment and cautious guidance for FY26. With prevailing uncertainties, FY26 growth may mirror FY25 levels or potentially fall short of it, experts said.

IT Headwinds May Persist

The IT index has corrected by 26 percent year-to-date in calendar year 2025, reflecting concerns over a slowing US economy. Analysts said near-term headwinds—including prolonged decision-making cycles, trade-related uncertainties, and delays in US monetary easing—are likely to persist.

Brokerages See Uncertainty Ahead

According to Nirmal Bang, discretionary IT spending is again on hold amid fresh uncertainties, particularly the potential imposition of new US tariffs, which could escalate trade tensions and delay the US Federal Reserve’s rate cut cycle. This cautious outlook is prompting clients to adopt a ‘wait and watch’ stance across much of the coverage universe.

Brokerages also expect mixed EBIT margin trends driven by the timing of wage hikes and seasonal pressures in select business segments. On a year-on-year basis, EBIT margins are likely to expand for all major IT companies, except TCS. Meanwhile, mid-tier firms are expected to post steady to strong margin growth, aided by the depreciation of the Indian Rupee and robust topline expansion.

A recent report by Kotak highlights that the threat of US tariffs has introduced additional uncertainty, dampening client spending sentiment. The correction in the IT index is seen as reflective of these risks. Assuming no recession materializes, several stocks present upside potential. Long-term revenue growth assumptions embedded in current valuations for many large-cap IT firms stand at a reasonable 5 to 7 percent.

Tier-I IT – What’s the Call

Analysts expect the top six Indian IT companies to report a sequential revenue decline ranging from -1.5 percent to flat in constant currency (CC) terms amid ongoing macroeconomic uncertainty. In contrast, mid-cap IT firms are projected to deliver organic CC revenue growth between 0 and 6 percent, driven by strong execution from LTTS, Coforge, and Persistent—companies benefiting from previous large deal wins and robust deal pipelines. Although the quarter may see some tailwinds from the reversal of furloughs, seasonality and fewer billing days are likely to remain key headwinds.

Tier-I valuations have now normalized to their 10-year averages, pricing in approximately 3 to 8 percent USD revenue growth for FY2026. Within Tier-II, Persistent and Coforge are expected to lead with double-digit growth, justifying their valuation premium.

In light of these dynamics, Nirmal Bang recent trimmed its USD revenue growth estimates for the sector under coverage by 0 to 5 percent. Valuation models have also been adjusted, now benchmarking against 10-year averages instead of prior 3 or 5-year mean. Top picks include TCS, Infosys, and HCL Technologies among Tier-I names, and Coforge from Tier-II, the report added.

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