Indian Tech Industry Sees Glimmer of Hope in December Quarter Amid Protracted Stagnation

New Delhi, January 3: India's $254-billion technology outsourcing industry, battered by protracted stagnation, is finally showing signs of improvement, but analysts warns that caution will be exercised as the market awaits management commentary from top players.

The industry, which has been struggling to break free from its revenue-generating markets' circumspect budgeting, is expected to show better-than-expected performance in the December quarter due to the rupee depreciation. Pareekh Jain, founder of consultancy firm EIIR Trend, attributed this improvement to "strong sectoral growth and margin expansion" in the third quarter.

However, analysts remain cautious as the industry faces headwinds from manufacturing, particularly the auto segment, which is expected to weigh on growth. Recovery in banking, financial services & insurance (BFSI) will be the key driver for growth, while companies like Tech Mahindra and Wipro may report higher decline in margins due to wage hikes.

Tata Consultancy Services (TCS), Bellwether of the industry, will kickstart the earnings season on January 9, followed by HCLTech announcements on January 13 and Infosys on January 16. Analysts expect aggregate revenue growth to moderate slightly to 0.7% QoQcc in Q3FY25.

Jefferies predicts that aggregate margins may remain mixed or flat sequentially, with TCS and HCLTech leading margin expansion while companies with wage hikes such as Wipro and LTIMindtree may report higher decline in margins.

The recent upward revision in revenue guidance by Accenture lends some credence to the revenue uptick outlook for FY26 by most analysts. Infosys is expected to upgrade its lower end of revenue guidance, narrowing it from an earlier estimate of 3.75-4.5%.

Besides management commentary, other key monitorables that will be watched closely include CY25 IT budgets of clients, discretionary spending uptick, deal pipeline, pricing environment, trends in key geographies like North America and Europe, and verticals such as BFSI, retail, manufacturing, hi-tech, and telecom.

Additionally, analysts will keep a watchful eye on the progress of GenAI across software service exporters and hiring plans from IT majors ahead of the demand pick-up and rising competition with global capability centers (GCCs) grabbing market share.