Moneycontrol Pro Panorama | Decoding IT performance as Trump takes charge

Trump's protectionist policies are expected to drive US growth but their impact on Indian IT companies remains uncertain.

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IT companies have consistently been frontrunners in announcing their financial results, setting the tone for market sentiments during earnings seasons. This quarter, top IT firms once again led the pack with early announcements, surpassing most analysts' expectations. However, their guidance for the future remains cautious.

The impending inauguration of Donald Trump as the President of the United States has created limited visibility for IT players. Despite predictions of strong US growth from analysts, including those from the IMF, Trump's proposed tariff barriers have raised concerns.

Before discussing the future, let's take a look at past performances. A notable highlight from this quarter's results was the widespread margin expansion across the sector. All major IT companies experienced margin growth, even in the face of wage hikes. TCS emerged as the top performer, boasting of the highest margin at 24.5 percent.

Headcount changes, an indicator of companies' future expectations, showed mixed results. While TCS and Wipro reduced their workforce, Infosys and HCL Tech increased their employee numbers. Attrition rates in the sector rose, with TCS and Infosys reporting increases of over 100 basis points to 13.5 percent and 13.7 percent, respectively. Interestingly, analysts now view higher attrition positively, interpreting it as a sign of improved industry opportunities.

All companies reported reasonable deal wins and expressed optimism about future prospects.

Two factors currently favour IT companies: growth in their key market and rupee depreciation. While Trump's protectionist policies are expected to drive US growth, their impact on Indian IT companies remains uncertain. However, many Indian IT firms have strategically expanded their onsite presence and formed partnerships or acquired local companies, leading analysts to anticipate minimal adverse effects.

Trump's stance on H1B visas has shifted, as evidenced by the US Department of Homeland Security's implementation of new rules to modernise and improve H-1B and H-2 non-immigrant visa programmes just before the inauguration.

A weaker rupee benefits IT companies, which derive nearly two-thirds of their revenue from the US market. Pareekh Jain, CEO of Pareekh Consulting and EIIRTrend, notes that for every 1 percent depreciation in the rupee, there's typically a 0.5 percent increase in revenue and about a 1.5 percent rise in profit for Indian IT firms. However, the rupee's appreciation against other currencies like the euro and the UK Pound may offset some of these gains.

Overall, IT companies maintain cautious optimism regarding discretionary spending in the rapidly evolving environment. Indian firms have positioned themselves well to capitalise on GenAI adoption.

HCL Tech's CEO and MD, C Vijaykumar, summarises the industry sentiment: "In 2025, we expect companies to increase their IT investments. We have seen improvements over the last two quarters and an overall improvement in the discretionary spending environment. Our clients are investing to drive innovation and efficiency with Gen AI and data at the centre of such initiatives."

IT players are more optimistic than other sectors that have announced their numbers. One cannot rule out the outperformance of these companies in the market, where headwinds are preventing growth in other sectors.

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Shishir Asthana
Moneycontrol Pro