Earnings guidance from leading Indian IT outsourcing firms, including Tata Consultancy Services Ltd. (TCS) and HCL Technologies Ltd., is set to reveal the impact of a burgeoning demand for artificial intelligence on their much-anticipated recovery.
Despite cautious spending on new projects by US and European companies, TCS and HCL continue to prioritize outsourcing initiatives focused on cost savings. This approach is expected to yield results, with consensus estimates predicting that TCS will report sequential revenue growth for the April-June quarter.
A significant driver of future growth is the boom in generative artificial intelligence. US-listed Accenture Plc has highlighted how this trend is acting as a catalyst for businesses to rethink and invest in their IT systems, creating potential revenue opportunities for firms like TCS and HCL.
TCS report
On Thursday, Tata Consultancy Services is expected to announce an 8% increase in quarterly profit, signaling the start of an earnings recovery in the Indian IT sector.
However, salary hikes are anticipated to impact margins compared to the previous quarter, although the rate of wage increases has slowed, according to analysts at Prabhudas Lilladher.
Notably, TCS is likely to have added over 10,000 employees from the previous quarter, marking the first sequential headcount growth in a year.
HCL Technologies earnings
HCL Technologies’ first-quarter earnings are projected to be bolstered by strong revenue growth in its IT & business and engineering & R&D services units, according to consensus estimates.
The company is expected to reaffirm its 2025 revenue growth guidance of 3%-5% at constant currencies, as per Nomura. However, Jefferies cautions that a near-term growth recovery is unlikely due to continued muted discretionary IT spending.
This earnings season will be critical in assessing the recovery trajectory of the Indian IT outsourcing industry, especially with the added impetus from AI demand amid evolving global economic conditions.
