Q2 results: Slow growth bottoming out in the top five IT companies

The second-quarter performance of the top five information-technology services firms gives the hint that slow growth has bottomed out on the back of discretionary spending kicking in for the sector’s largest vertical — the banking and financial services.

However, concern about the macro-environment continues to be a challenge.

Among the top four — Tata Consultancy Services (TCS), Infosys, HCLTech, and Wipro — it is Bengaluru-based Infosys that has performed the best and that was evident in its full-year revenue guidance.

For the second consecutive quarter Infosys increased its guidance.

It now expects FY25 revenue to grow in the range 3.75-4.5 per cent from the 3-4 per cent stated earlier.

What gives confidence of the turnaround is that all the players have said they are seeing discretionary spend is back in banking, financial services and insurance (BFSI).

This is of significance because BFSI is the largest in terms of revenue generation.

In the case of TCS, the largest player in the segment, BFSI has growth across the United States and Europe.

“In North America, continental Europe, and the UK, we see good growth in banking. And capital markets have been weak.

"Insurance has grown and regulations and risk and compliance have also grown in banking.

"In Europe, it’s more or less very similar trend.

"In the UK, the capital markets have always been a problem.

"The good thing is banking is coming up, and so is insurance, which we hope will sustain in the coming quarters,” said K Krithivasan, chief executive officer (CEO) and managing director (MD), TCS, in the analyst call.

The commentary was similar across players. Salil Parekh, CEO and MD, Infosys, said: “Financial services in the US continue to see discretionary spend increasing.”

Biswajit Maity, senior principal analyst, Gartner, said: “A majority of Indian IT providers experienced a recovery in Q2 compared to the slowdown in Q1.

"While demand is improving, we expect to see further recovery in the coming quarters.

"Despite various macroeconomic challenges, the overall outlook for major IT services remains positive, with a strong deal pipeline. We’ve consistently emphasised this year will see growth.”

While concerns and challenges remain, analysts say the sector should now be able to grow well.

The immediate challenge will be Q3FY25, which will have the impact of fewer working days, furloughs and the US election.

Add to this discretionary spending is still selective and limited to some verticals.

And margin improvement is still coming from operational efficiencies and exchange rate gains rather than stronger growth.

Pareekh Jain, CEO and lead analyst at Pareekh Consulting, said: “Growth will be evident only in FY26, but there are clear signs that growth momentum is back.

"Moreover, hiring has returned at almost all the firms.”

This is the first quarter for many of the players when they had a headcount addition.

Infosys in Q2 increased its staff strength after six-seven quarters of decline.

In the second quarter the company added 2,456 employees. Wipro added 978.

Similarly, in the case of HCLTech the fresher addition was 2,932 for the quarter.