India’s top IT services companies have upped their revenue growth projections for the current fiscal (FY25), with four of the five largest companies even hiring more people in the first six months compared to the year-ago period.
This positive guidance comes at a time when the companies’ order books have shrunk in H1FY25 compared to H1FY24. Plus, the current quarter (Q3) is not expected to result in handsome gains.
The higher revenue forecast and increased headcount signal things may improve this fiscal for the country’s $254-billion IT industry, which grew at its slowest clip last year due to a demand slowdown and macroeconomic challenges that curbed client spending on technology.
Infosys, which started the year with growth projections of 1-3% in constant currency terms (not taking currency fluctuation into account) for the 12 months through March 2025, now expects to end the current financial year with 3.75-4.5% growth in revenue compared with last year.
In FY24, the Bengaluru-based company had reported $18.6 billion in revenue, up 1.9% year-on-year (y-o-y), which was its slowest growth since Salil Parekh took over as CEO in January 2018.
In the company’s post-earnings call with analysts on 17 October, Parekh said multiple factors, including its H1FY25 performance, contributed to the increase in guidance. Infosys saw its revenue grow nearly 3% y-o-y in the April-September period to $9.6 billion.
“We saw continued momentum in volumes as well as in financial services,” Parekh said. “Our increase in smaller deals, which are less than $50-million deals, as we said earlier which has had a strong double-digit growth… I think all of these factors contributed to the increase in the guidance.”
Noida-headquartered HCLTech now expects revenue growth of 3.5-5% in constant currency terms in FY25, marginally higher than the 3-5% growth it had forecast at the start of the financial year. In the first half, the company grew its revenue almost 6% y-o-y to $6.8 billion.
“While we see the optimism that’s coming out of the improving demand environment across multiple verticals, we are also a little bit more cognizant of the broader macroeconomic environment and the geopolitical context,” said C. Vijayakumar, CEO of HCLTech, in the company’s post-earnings interaction with analysts on 14 October.
HCLTech grew the fastest amongst its peers last fiscal, recording $13.3 billion in revenue at a y-o-y growth rate of 5.4%.
Tata Consultancy Services Ltd (TCS), India’s largest software services company, does not spell out a full-year or quarterly growth guidance. However, its CEO K. Krithivasan sounded positive in a post-earnings conference call with analysts on 10 October.
“With the easing of the interest rate environment, consumer confidence and industry concerns will get better,” Krithivasan said on the call. “This can potentially lead to improved investment. Customers are focused on operational efficiency and upgrades for the future with an eye on efficiency and automation.”
Hiring on the rise
While higher revenue forecasts might be an indicator of growth, rising employee count in IT services companies is indicative of growing demand for software services.
Three of the top five companies—TCS, Tech Mahindra, and Wipro—have added more people since the start of the fiscal year. Infosys added employees in the second quarter, offsetting the reduction in the first three months.
TCS added 11,178 employees in the first two quarters of FY25, compared to a fall in headcount of 5,900 in the same period last year. In all, TCS ended the September quarter with 612,724 employees.
Infosys added 598 net new jobs in H1FY25, compared to a fall in headcount by 14,470 in H1FY24. It ended the September quarter with 317,788 employees.
Cross-city peer Wipro added 1,315 employees since April this year. It had reduced its workforce by 13,863 employees in the first half of Fy24. It ended September 2024 with 233,889 employees.
Pune-headquartered Tech Mahindra Ltd, part of the ₹5.9 trillion (market cap) Mahindra Group, increased its workforce by 8,818 since the start of the fiscal. This is against a net headcount reduction of 1,796 in the first half of the previous fiscal. Tech Mahindra ended the three months through September 2024 with 154,273 employees.
The script is slightly different for HCLTech, with the company cutting headcount both this fiscal and the previous one. This fiscal, it has cut 8,860 jobs after it got out of a joint venture with State Street, a Boston-based financial service provider by divesting its 49% stake in the joint venture effective 1 April. Comparatively, it had cut 4,805 jobs in H1FY24. It ended the September quarter with 218,621 employees.
Trying quarter ahead
Even as headcount and growth revision might show sparks of recovery, the three months through December 2024 look challenging.
The third quarter is generally a seasonally weak quarter for software service providers, because of lesser working days due to festive holidays, which translates to tempered business.
“Our Q3 revenue ,” said Srinivas Pallia, CEO of Wipro, said the company’s Q3 revenue is expected to be affected by seasonal furloughs (lesser working days), as part of his prepared remarks in the post-earnings conference call with analysts on 17 October. “As a result, we are guiding for a sequential revenue growth of minus 2% to 0% in constant currency.”
While the other top homegrown IT services companies have factored in the impact of lesser working days, Wipro’s Pallia said the situation could be different for his company.
“Maybe it could be very specific to the clients that we are engaged with and the decisions that they take because some of the sectors have a lot more furloughs than the rest,” said Pallia.
As lower working days might impact business, the impact of wage hikes to employees might also stunt margin growth for homegrown IT services companies.
“The impact for the next quarter is going to be somewhere between 65 and 80 bps (basis points) in Q3, and an incremental further impact of another 50-60 bps in Q4,” said Shiv Walia, chief financial officer of HCLTech, in the company’s post-earnings conference call with analysts. “That’s the impact of wage hikes we will have for the rest of the year.”
HCLTech had the best margin performance among its peers, reporting a sequential jump of 150 basis points in operating margins to 18.6% in the July-September 2024 period. One bps is one-hundredth of a percentage point.
Growth on the horizon
At least one analyst said growth for IT services companies was imminent, attributing it to artificial intelligence (AI) adoption and tech modernisation.
“Growth is back on the cards for some of the Indian heritage service providers, which are adapting to the new services economy where there is a major focus on AI and data infrastructure development and core tech modernization,” said Phil Fersht, CEO and chief analyst of HFS Research.
However, a second analyst projected an uneven recovery.
“We’ve detected banks evaluating mounting needs to work on IT modernization and seeking help on compliance/risk management, but these improving sources of IT services demand (are) likely counteracted by insourcing,” said Peter Bendor-Samuel, founder and CEO of Everest Group. Insourcing refers to giving traditionally outsourced IT services work to in-house teams.
“The growth in headcount is somewhat driven by firms positioning themselves to be able to grow, but also due to balancing out the pull-back we have seen over the last year,” said Samuel.
