The earnings season which commences next week is unlikely to bring any cheer to the IT sector as companies are likely to continue reporting muted numbers despite the second quarter being a traditionally strong period.

Even though some of the companies have recently reported an uptick in their order book, a weak macro environment that has impacted discretionary spending is expected to see companies reporting only a 1-1.5 per cent growth in revenues on a sequential basis.

Tata Consultancy Services (TCS) will kickstart the earnings season on October 11. Infosys and HCL Technologies will come out with their second quarter results a day after TCS with Wipro scheduled to do so on October 18.

Brokerages feel that though the second quarter results will be better than the preceding period, there is uncertainty as to when there will be a turnaround in the industry’s fortunes or a pickup in discretionary spending. The market will be waiting for the management of the frontline companies to provide guidance for the year along with the results.

``The growth of the IT services industry is expected to remain weak in the second quarter, as macroeconomic uncertainty continues to weigh on discretionary spending," a note from Motilal Oswal said.

"While the industry has witnessed an uptick in order inflow over the past two months with a focus on cost efficiency, the slowdown in project-based business is expected to hamper overall industry growth, even though the second quarter is traditionally a robust season for the sector.’’

The brokerage said spending patterns among its clients have now shifted toward cost reduction and efficiency-focused initiatives. Therefore, the deals targeting these essential areas have experienced increased momentum.

However, the worsening macroeconomic conditions are tightening spends on transformational initiatives and non-critical multi-year projects.

The companies that are tracked by the brokerage are expected to report a median revenue growth of 1.5 per cent quarter-on-quarter or 5.7 per cent over the same period in the previous year.
According to its analysts, this growth rate is
among the slowest observed over the last decade. When it comes to verticals, areas like BFSI, retail, hi-tech, and communication are expected to continue with their sedate show.

During the first quarter ended June 30, 2023, Infosys had not only reported a modest 11 per cent growth in net profits, but had also sharply cut the revenue guidance in constant currency terms to 1-3.5 per cent for the fiscal from its earlier projection of 4-7 per cent.

JM Financial expects TCS to report a net profit of Rs 11,299 crore, an 8.3 per cent growth from a year ago and revenues of Rs 60,229 crore, a rise of nearly 9 per cent.