Muted demand to stymie Q4 hopes of IT companies
The fourth quarter of 202324 is not going to bring any good news for the Indian IT industry. Going by the global macro cues, the fourth quarter results are likely to reflect the continuation of recent soft demand trends.
There, however, is a piece of good news. A recovery in the US economy, which is a major source of revenues for the IT industry here, augurs well for 202425.
Analysts see signs of improvement in the global economy, macro indicators and strong deal wins in recent quarters translating into revenue growth acceleration in 202425.
Some others, however, feel that a weak exit to 202425 and a still inconducive demand environment could temper the initial guidance for 202425 for most companies. Research firm Emkay Global Financial Services felt that subpar growth would persist in the fourth quarter as muted demand trends continue on account of weak discretionary spending and cautious behaviour by clients, amid uncertain macros.
“Margins should remain steady despite weak revenue growth, as companies optimise costs and tighten discretionary spending. The expectations of slower and shallower rate cuts may delay recovery for IT companies,” it said.
DEAL WINS
“Midcaps are again expected to outperform; we expect them to report sequential growth of 15 per cent compared to 2 per cent to +2 per cent (US dollar growth) for largecaps in our coverage. Deal wins are expected to remain steady in the fourth quarter,” it said.
It, most however, felt that of the companies would register sequential improvement in their margins driven by better cost control, tightening discretionary spending, and easing supplyside pressures.
TEPID DEMAND
Kumar Rakesh, an analyst with BNP Paribas Securities, echoes a similar view. He said that IT services demand continued to struggle with constrained discretionary demand as enterprises remain uncertain about the macro economic outlook.
Citing reports of the US economy entering a Goldilocks phase (a phase of sustainable economic growth, low unemployment, and controlled inflation), he felt that the enterprise sentiment might turn positive for tech spending.
Stating that the fourth quarter would witness beginning of a gradual recovery, the revenue growth for largecap coverage of the