Following a weak performance in Q2, Tata Consultancy Services (TCS) anticipates an improvement in Q4 FY25 as Q3 is traditionally a weak quarter marked by furloughs. "We expect the headwinds to stabilise in Q3 and return to growth in Q4," the company told analysts in its post-earnings conference call on October 10.
Furloughs involve the situation where clients in areas like the US and Europe refrain from compensating outsourced employees from Indian IT firms for specific days when their operations are suspended, typically during Christmas and New Year.
On being asked about the expansion of deal cycles, the IT behemoth clarified that the time to close the deal has been extended. "It's not the tenure of the deal, it's the time to close the deal that has expanded between Q1 and Q2."
Also Read | TCS Q2 FY25 net profit falls to Rs 11,909 crore, misses estimates; dividend declared
TCS also addressed concerns around muted discretionary spending, saying not much has changed since the last quarter. However, the company expects discretionary spending to return over a period of time.
"Globally, clients continue to prioritise efficiency through cost transformation programs, and demand for discretionary deals with low immediate ROI (return on investment) remain relatively subdued," said chief executive officer K Krithivasan.
However, with the Fed's first rate cut in four years, Krithivasan expressed confidence that recent trends indicate that the company’s major segments in BFSI in the US are looking at sustaining the growth momentum.
Also Read | TCS Q2 order book declines over 23% YoY to $8.6 billion
"With the easing of interest rate environment, consumer confidence and industry confidence will get better," he further said.
The Mumbai-headquartered company believes that once market uncertainties ease, clients will start investing again. "I don't want to say that it immediately happens in Q3, but we believe in the medium term, it should happen."
Meanwhile, TCS acknowledged that infrastructure and capacity-building investments impacted margins in Q2 FY25 and reiterated their target of exiting Q4 FY25 at the 26 percent mark. In the September quarter, the company's operating margin declined by 0.2 percent YoY to 24.1 percent.
On October 10, TCS shares closed 0.6 percent higher at Rs 4,227.90.
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