CEOs of IT companies expect mixed bag in FY25 after weak show last year

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While financial year 2024 ended with subdued performances across the board, the CEOs of leading IT companies have expressed varied sentiments on the outlook for fiscal year 2025 (FY25).

Analysts say the performance of the mass employment-generating and high-growth sector in FY24 has been one of the most lacklustre in recent memory. They believe this might not change drastically in the next year or so, as companies struggle with dwindling growth amid an uncertain macroeconomic environment.

While TCS and Tech Mahindra say the current financial year will be better than the last one, Infosys and HCLTech say it will be similar.

Here’s the outlook from the top bosses of leading IT companies for the financial year 2024-25.

Sector behemoth TCS remains cautiously optimistic about FY25. This financial year should be better than FY24, said CEO K Krithivasan, addressing the media after declaring the results for the quarter ended March 31, 2024. Nevertheless, the Mumbai-headquartered firm said it would not hazard a guess on when growth will return in FY25.

Also read: There is a greater opportunity to increase pricing: TCS CEO K Krithivasan

Even if the company’s revenue betters its FY24 numbers, which grew a mere 6.8 percent YoY to Rs 2,40,893 crore, it would still be far behind the FY23 growth of 17.6 percent. Brokerage Motilal Oswal Financial Services expects TCS to record 8.8 percent year-on-year growth in FY25.

Discretionary spending is yet to pick up for IT companies as clients tighten their purse strings during uncertain macroeconomic situations. “Clients want to do transformative work, and they want to embrace new technology. Clients want to do all of them, and clients also want to conserve costs,” Krithivasan said.

Motilal Oswal Financial Services said it continues to expect the Tata Group company to benefit from the large BSNL deal execution in FY25. “But continued uncertainty on growth pickup in North America and Europe is likely to weigh on overall growth,” it said.

On the other hand, India’s second-largest IT firm Infosys expects FY25 trends to be similar to FY24. Discretionary spending and digital transformation projects were weak in FY24 and Infosys sees them remaining at the same level. It also sees a persistent focus on cost efficiency and consolidation deals, which usually land with top IT firms.

On client budgets, the Salil Parekh-led firm said trends seem to be similar for digital work or discretionary work. “Nothing seems to have changed… between March and April or as you look out into this financial year,” Parekh said on April 18, while speaking to analysts after declaring the company’s fourth-quarter earnings.

However, Parekh said some industries, such as financial services, are showing signs of improved spending, while manufacturing faces a slower growth trajectory. The trends are different for different industry groupings, the Bengaluru-based company said.

Infosys has slashed its revenue guidance for the fiscal 2025 to 1-3 percent as weakness continued in discretionary and digital projects. It has revised its annual revenue growth guidance five times in the previous five quarters, amid an uncertain demand environment.

Brokerage Kotak Institutional Equities said the improvement in revenue will be facilitated by large and mega deal revenue contributions and slower pace of ramp-downs in the existing business. “Guidance (of 1-3 percent) is front-ended, in our view,” wrote analysts Kawaljeet Saluja, Sathishkumar S, and Vamshi Krishna in the report.

Also read: Clients willing to have pricing discussions due to onsite inflation, says Infosys CFO

Meanwhile, India’s third-largest IT services firm, HCLTech, is bracing for a potential revenue reduction as it transitions certain large deals into a global delivery model in FY25.

“As we get into FY25, some of the large deals that we won will move into a global delivery model and that will have some reduction in revenue. Our assumption is (we) will continue to (see) similar (revenue growth) to what we saw in FY24,” said HCLTech CEO C Vijayakumar.

HCLTech slashed its constant currency revenue growth guidance for FY25 in the range of 3-5 percent, down from 5-5.5 percent guided for FY24. To be fair, among IT companies that disclose revenue guidance, HCLTech boasts the highest projection.

In a research note, brokerage Nomura said the first half of FY25 is likely to be soft for the Vijayakumar-led company. The management highlighted that annual productivity benefits to clients on renewals and offshoring of a large contract will lead to around a 2 percent sequential decline in April-June.

Also read: FY25 guidance of 3-5% good growth in current environment: HCLTech CEO

Nevertheless, Tech Mahindra anticipates a better performance in FY25. “As we step in to FY25, we believe this year will be better than the previous year in a world of heightened political turmoil, coupled with fast-evolving AI capabilities,” said CEO Mohit Joshi, after declaring the March quarter earnings.

Joshi added that organisations will have to either address and adapt or defend and insulate their businesses like never before. The company also unveiled a 3-year plan with granular details, which also said FY25 is likely to be a turnaround year.

Brokerages say Tech Mahindra appears to be addressing client-specific engagement issues within various verticals, while maintaining a robust deal pipeline. “However, the demand scenario remains uncertain and may lead to lower revenue growth momentum in the near term,” said Axis Securities, in a note.

On April 19, Wipro’s new CEO Srinivas Pallia outlined five key focus areas to turn the company around, amidst tepid market demand as well as the company's enduring challenges, which have resulted in a continual decline in its market share.

For the quarter ending June 30, the company has guided for sequential revenue growth of (-) 1.5 percent to 0.5 percent in constant currency terms. Most analysts had expected Wipro’s guidance range to hover between 0 percent and 2 percent sequentially.

Brokerage Kotak said several indicators point to a tough FY25 for Wipro, such as weak growth guidance, the lack of sufficient new deals, a broad-based underperformance in comparison with its peers, a patchy track record in account management, and the loss of several senior leaders.

“Srini needs to keep the remaining flock together, including those hired under Thierry (Delaporte). We expect flat revenue in FY2025,” the brokerage said in a note.

As the IT sector braces for FY25, the Street is keenly watching to see how the top IT companies execute and perform amid tough macroeconomic conditions.

Also read: TCS outperforms Infosys in revenue growth for the first time in five years