Indian IT Firms Experience Subdued Q4 Results Amid Ongoing Global Tensions and Economic Headwinds

Indian IT Firms Set to Report Lackluster Quarter

Bengaluru, April 6 (Reuters) - Top Indian information technology firms are expected to report another disappointing quarter, with revenue and profit seen rising around 10% year-on-year primarily due to a weaker rupee, rather than underlying growth, according to seven brokerages.

The sector's revenue forecast for the next fiscal year is a key focus for investors, as uncertainties due to wars, weak discretionary spending, and concerns around artificial intelligence continue to weigh on client budgets. Tata Consultancy Services, Infosys, HCLTech, and other software services exporters are due to report their fourth quarter results starting April 9.

The Indian rupee's decline of 4% against the U.S. dollar during the March quarter has benefited software services companies, which typically bill in foreign currencies while incurring most costs in rupees. This has inflated profits when dollar revenues are converted. The $315 billion sector, which employs about 5.9 million people, last reported double-digit revenue growth in the March 2023 quarter.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The top six firms in the sector are expected to see revenue grow about 10.9% year-on-year in the March quarter, with net profit rising 10.3%. However, on a constant currency basis, or stripping out exchange-rate effects, the top four IT firms are more likely to see revenue rise only 1.8% for the year.

Analysts at Yes Securities have noted that performance is likely to be uneven, with relative resilience in banking and financial services, while retail, healthcare, and hi-tech segments could face pressure due to higher exposure to discretionary spending. "Our recent interactions suggest that overall client budgets have not increased materially and discretionary spending remains at bay," said analysts at Jefferies in a preview note.

However, even a modest revenue forecast could support stock prices, HSBC analysts said, noting valuations currently reflect only low-single-digit growth. The burden of proof now sits with IT companies to survive and thrive in the face of artificial intelligence disruptions. Shares of IT companies are down 20% so far this year, on investor worries that advanced AI tools launched by Anthropic and Palantir could disrupt IT's traditional business models and cannibalise business. The Nifty 50 is down 13%.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline