The earnings calendar will kick off this week with the IT sector, which is expected to do slightly better in the first quarter of 2024-25 than in the preceding quarters.

A runaway growth in the first quarter is unlikely as clients continue to apply the brakes on discretionary spending, and instead focus on saving costs by streamlining processes through technology.

Tata Consultancy Services (TCS) will report its earnings for the first quarter ended June 30, 2024 on July 11 and HCL Technologies will follow the next day.

Their scorecards come at a time IT shares have underperformed the benchmark indices on account of muted performance over the past several quarters.

While the Sensex has risen almost 11 per cent since the beginning of this calendar year, the BSE IT index has advanced 6.41 per cent.

Analysts expect a better performance amid improved sentiments, but a meaningful change may be seen only in 2025.

``We expect the revenues of IT services companies to recover following a tepid fourth quarter 2023-24 for the industry, as the ramp-up of large cost-takeout deals could drive growth for large-caps in a seasonally strong quarter,” analysts at Motilal Oswal said.

“The brutal winter of discretionary spend cuts in the industry is likely over, but there is little evidence of a recovery in the flow business,’’ the brokerage said.

The brokerage pointed out that it could be one of the weakest first quarters for at least 10 years. ``We would be looking for signs of recovery in discretionary spending in the form of deal activities, which have been heavily skewed towards cost-takeout projects.’’

It expects no changes in guidance or the commentary from companies on 2024-25 revenue growth even as companies are likely to focus on demand pickup happening in the second half of 2024-25.

It expects TCS to report 9.2 per cent growth in net profits at ₹12,140 crore for the April-June quarter over ₹11,120 crore in the corresponding quarter last year and revenues to rise almost 5 per cent at ₹62,200 crore against ₹59,400 crore a year ago.

On the other hand, Infosys is forecast to see a 6.1 per cent rise in its bottom line to ₹6,310 crore from ₹5,950 crore in the year-ago period while revenues are expected at ₹38,800 crore from ₹37,900 crore, a rise of 2.37 per cent.

On the margin front, TCS could see a contraction of 150 basis points to 24.5 per cent on a sequential basis due to wage hikes. It could improve 30 basis points for Infosys to 20.4 per cent due to gains from its cost-benefit programmes, though they could be offset by visa and other seasonal costs.

According to Prabhudas Lilladher, its IT coverage universe is expected to report a median revenue growth of 0.8 per cent sequentially in constant currency during the first quarter against a median decline of 0.6 per cent in the January-March period.

The brokerage feels revenue performance of top tier firms will be biased towards selective verticals or a couple of large deal ramp-ups that have long been deferred, instead of broad-based recovery within the space.

``The broader enterprise theme to drive cost-takeout and bring productivity, continued through the first quarter with critical functions being reprioritised over discretionary programmes. However, a few verticals (BFSI, communications) witnessed some momentum in activities with a slight uptick in discretionary spends, but it is difficult to call this a trend that is sustainable and predictable,’’ it added.

Its analysts feel that while TCS could see a 10.7 per cent rise in net profits on a year-on-year basis, it could be 5 per cent for Infosys and 6.8 per cent for HCL Technologies.