IT services sector faces headwinds in March quarter: Report

IT sector Q4 preview: The IT services sector is likely to encounter ongoing challenges in the fourth quarter of financial year 2024 (Q4FY24), according to analysts at JM Financial. 

Analysts highlight soft demand trends, with global peers indicating a weak start to the year in their quarterly guidance. Furthermore, tightening IT budgets, as indicated by Accenture's commentary, may exacerbate the situation.

Furloughs, signalling an incremental budget squeeze, are expected to spill over into Q4, brokerage firm JM Financial said in a note. 

Consequently, analysts anticipate that companies could miss the upper end of their fourth quarter (Q4) guidance. Meanwhile, large-cap IT services players are forecasted to report modest revenue growth ranging from -1.8 per cent to 1.0 per cent quarter-on-quarter (QoQ), with TCS leading the growth due to the BSNL deal ramp. 

Mid-cap players, however, are expected to fare relatively better, the Mumbai-based brokerage added.

Muted growth is anticipated to weigh on margins, limiting expansion. JM Financial brokerage report predicts a marginal margin expansion for top-tier players, while mid-cap companies may experience limited margin expansion.

Large deal announcements are expected to remain steady, with no fireworks anticipated. While large deals have been consistent, mega deals have been notably absent. 

Guidance for financial year 2025 (FY25) is eagerly awaited, with expectations adjusted downwards in light of ongoing headwinds in the demand environment.

Analysts underscore the challenges faced by the IT services sector in the current landscape, with expectations cautiously set for the upcoming quarter and fiscal year.