IT services Q1 results – Decent start to the year of recovery- FY25

We expect IT companies to display modest but better-than-Q4 QoQ constant currency revenue growth in Q1 FY25, as pockets of green shoots appear in artificial intelligence, consulting, engineering research and development, healthcare and BFSI.

Clients are focussing on critical projects that have potential for prompt return on investment. AI-related spend is coming at the expense of IT budget thinning in other areas.

We introduce our FY27 estimates and envisage FY25 to be more palatable than FY24. Further, there are indications that FY26 pointing to a likely upturn in growth, which include:

• convalescing enterprise discretionary spending;
• AI’s meatier representation in revenues; and
• ER&D’s continued momentum.

Following a notable talent pool diminution in FY24, we see most companies adding net headcount (QoQ) ahead. The margin picture for Q1 is yet unexciting, at average 19 bps QoQ expansion. Total contract value shall be flat QoQ. ICICI Securities