New Delhi: IT companies are poised for improved revenue performance, with sequential growth expected to range between 0.0 per cent and 2.5 per cent in USD terms for Tier 1 firms in the second quarter of FY25, according to a Centrum report.


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This recovery is driven by the ramp-up of recently signed deals and an enhanced Total Contract Value (TCV) to revenue conversion. A significant factor bolstering this positive outlook is the reduction in deal leakages compared to FY24, signalling stronger operational momentum for the sector. IT services companies are navigating a challenging landscape due to ongoing macroeconomic concerns in key markets such as the US and Europe.


However, early signs of recovery are visible, particularly in verticals like Banking, Financial Services, and Insurance (BFSI), Technology, Media, and Telecommunications (TMT), and Manufacturing. Sectors like Healthcare and Manufacturing continue to demonstrate strong demand, providing a buffer against broader market headwinds.


The growth forecast includes 1.7 per cent for TCS, 2.5 per cent for Infosys, 1.0 per cent for HCL Tech, 0.0 per cent for Wipro, and 0.5 percent for Tech Mahindra. Infosys is expected to outperform its Tier 1 peers, while among Tier 2 companies, Coforge is forecasted to lead with 4.0 per cent QoQ revenue growth.


For Tier 2 IT companies, revenue growth is expected to range from 1.9 per cent to 4.0 per cent, driven by improved operational execution and strong demand in specific verticals. LTIMindtree (2.8 per cent), LTTS (3.8 percent), and Happiest Minds (2.0 per cent organic) are among the top performers. The depreciation of the Indian Rupee (INR) against the US Dollar (USD) by 0.4 per cent and cross-currency tailwinds between 25 and 60 basis points are expected to provide additional support for growth in INR terms.


The IT sector is also focusing on improving overall productivity, with particular attention to utilization and operating margins. Gross headcount additions are expected to improve as utilization remains high. Many companies are concentrating on key levers to enhance operating margins, such as reducing subcontracting costs, optimizing the employee pyramid, and moderating wage hikes.


Notably, employee attrition has stabilized after peaking in FY24, further contributing to operational efficiency. A significant driver of medium-term growth for IT companies is expected to come from generative AI-based solutions. Most IT firms have already established dedicated business units focused on developing Gen AI offerings, with tangible use cases emerging across various verticals.


As IT companies gear up for Q3 FY25, management commentary on the demand environment, revenue, and margin guidance for FY25 will be key focus areas.