The third quarter results season will start this week with analyst attention on
management outlook of IT companies for the next fiscal.

The sector is widely expected to report subdued numbers for the quarter that ended December 31, 2023, amid higher furloughs and a weak global macroeconomic environment.

India’s top two IT services giants — Tata Consultancy Services (TCS) and Infosys will kick off the earnings calendar on January 11. The duo will be followed by Wipro and HCL Technologies the next day.

Amid tepid forecasts in IT, analysts project banks, automobiles, telcos, cement and aviation to report steady numbers, while the performance of metal and oil refining firms could be muted during the quarter.

India’s IT services have been reporting weak performance so far this year as they have been hit by a slowdown in discretionary spending by enterprises.

There has been no change in the environment for the better: a fortnight ago Accenture forecast its revenues in October-December will be in the range of $15.40-16.00 billion, or -2 per cent to 2 per cent due to negative forex impact. This came after it posted a 3 per cent revenue growth at $16.22 billion in the September-December period.

Back home, Infosys had cut the revenue guidance for this fiscal for the second time in October.

It had forecast a 1-2.5 per cent revenue growth in constant currency terms.

In the preceding quarter, it had slashed the guidance to 1-3.5 per cent from the earlier projection of 4-7 per cent.

In a seasonally weak period, IT services firms could be pinched by more furloughs.

``During the third quarter, we expect aggregate revenue growth for our coverage universe to remain muted at 0.8 per cent quarter-on-quarter (QoQ) in constant currency, given the seasonal impact of furloughs, which are deeper this year,’’ analysts at Jefferies said in a note.

``While sequential growth has improved by 40 basis points versus the second quarter, this is the slowest aggregate growth in the third quarter of any year in the past decade.’’

The brokerage went on to add that the primary focus will be on commentary on the demand environment and calendar year 2024 IT budgets.

It expects TCS to report a nearly 3 per cent growth in net profits for the October-December quarter at Rs 11,131 crore.

US dollar revenues will come at $7.2 billion, a growth of 3 per cent. In TCS, the focus will be on any strategic changes under the new CEO.

Infosys could see a 7.5 per cent fall in its bottomline to Rs 6,091 crore from Rs 6,586 crore in the same quarter of the previous year. The
Bangalore-based firm is forecast to report a 0.5 per cent fall in dollar revenues at $4.6 billion.

The street will also look at the leadership churn in Infosys, large deal ramp-ups and a margin expansion programme.

According to ICICI Securities, the signs of improvement in IT spending in the near term remain elusive, with continued scrutiny over discretionary spending and focus on cost optimisation.

Despite the recent statement by the US Fed giving some comfort, it is now modelling a ``slower pace of recovery than envisaged earlier, and thus cut 2024-25/26 revenue growth estimates by 2-4 per cent for covered companies.”

Its analysts said the sequential growth for Tier-1 IT services is between -2.6 per cent and 5 per cent, while it will come at 1-3 per cent for Tier-2 players.

Among others, the banking sector is expected to continue reporting strong loan growth and stable asset quality marked by credit costs remaining well under control.

However, they could see a suppression in the net interest margins on account of a rise in deposit rates.