Four out of five IT companies are likely to report a decline in revenue. Commentary across the board is expected to reflect that while the macro environment has not improved, it has not deteriorated either.
CC revenue growth in Q1Among the Tier-1 IT companies, Infosys is expected to lead revenue growth of 1.5% quarter-on-quarter in constant currency terms aided by seasonality and weak base of Q4FY25.
Other companies like TCS, Wipro, HCL Tech, and Tech Mahindra are expected to log sequential declines of 1.4%, 2%, 1.1%, and 0.7%, respectively, according to a CNBC-TV18 poll.
Guidance
Infosys may revise its revenue growth guidance upward from 0-3% to 1-3%, or even to 1.5-3.5%, supported by approximately 50 basis points of contribution from recent acquisitions.
Meanwhile, HCL Technologies could adjust the lower end of its guidance from 2-5% to 3-5%.
Management commentary across the board is expected to indicate that while the demand environment has not improved, it has not worsened either.
Company-wise key expectationsTCS: TCS is expected to report revenue growth decline in CC terms due to the ramp-down of BSNL deal. EBIT margin is likely to improve by 10 basis points quarter-on-quarter.
Infosys: Infosys is expected to report a revenue growth of 1.5% in CC terms q-o-q led by Financial services and aided by MRE Consulting and Missing Link consolidation. EBIT margin is expected to improve sequentially by 25 bps.
HCL Technologies: HCLTech may report a sequential revenue growth of -1.1% in CC terms with cross-currency tailwinds of 200 bps. EBIT margin is expected to decline by 70 bps q-o-q.
Wipro: Wipro is expected to report a sequential revenue growth of -2% q-o-q in CC terms, within its Q1 guided range, of -1.5% to -3.5%. EBIT margin is expected to be flat sequentially.
Midcaps likely to outperform?
Midcap IT companies are expected to deliver healthy Q1 growth, driven by market share gains and a favourable portfolio mix. Companies with lower exposure to the manufacturing vertical are likely to benefit the most.
According to a CNBC-TV18 poll, quarter-on-quarter constant currency growth is estimated at 0.85% for LTIMindtree, 1.5% for Mphasis, 3.8% for Persistent Systems, 6.5% for Coforge, and 2.5% for Hexaware.
Nifty IT lags broader market
The Nifty IT index has underperformed the broader market so far this year, delivering a negative return of around 10% year-to-date, compared to a 7.5% gain in the Nifty 50.
Despite the underperformance, valuations remain elevated.
The Nifty IT index is currently trading at 25.3 times forward earnings, which is in line with its five-year average. Large-cap IT stocks are trading at a price-to-earnings (PE) multiple of 23.7x, while midcap IT firms are trading at a much steeper 32.8x, a 38% premium to large caps.
