IT Stocks Under Stress Ahead of Q1 Results: TCS, HCL, Infosys Shares Fall

Tata Consultancy Services (TCS) and HCL Tech, which are set to announce their Q1 financial results this week, on Wednesday witnessed a steep fall in their share prices. Scrips of India’s largest IT services firm TCS declined 1.73 per cent in the afternoon trade on Wednesday, while the shares of HCL Tech fell 2.11 per cent.

According to a market expert, “The fall in IT stocks, especially TCS and HCL Tech, signals weak financial results, which will be release this week.”

TCS will announce its Q1 FY25 financial results on July 11, while HCL Tech will declare its earnings on July 12.

On the BSE, shares of TCS were trading lower by 1.73 per cent at Rs 3,922.55 as at 12:01 pm, while HCL Tech was down by 2.11 per cent at Rs 1,498.6 apiece.

Infosys also reversed its early gains, and its shares were trading 0.7 per cent down at Rs 1,645.6 per cent apiece on the BSE as of 12:08 pm on Wednesday. Infosys will announce its Q1 results on July 18.

IT Earnings This Week: What Analysts Say?

On TCS Q1, Manish Chowdhury, head of research at StoxBox, said, “We expect TCS’s revenue growth to be sequentially in the lower single digits, led by contributions from recent deal wins. However, the company’s EBIT margin is projected to contract due to recent wage hikes.”

The deal pipeline remains robust, focusing on demand recovery in the second half of FY25. Furthermore, management’s commentary on the demand environment would be a key thing to watch out for, he added.

According to analysts at Motilal Oswal, TCS is likely to have grown 1.6 per cent QoQ CC, led by deal scale-up, including the BSNL deal, which is ramping up as per plan. Its EBIT margin may contract 150 bps QoQ owing to wage hikes in Q1FY25.

On HCL Tech, analysts expect a 2 per cent sequential decline in revenue for the quarter, influenced by customary annual productivity adjustments to clients and planned reductions in its IT services segment. Margin contraction of 80 basis points is expected quarter-on-quarter due to seasonal challenges. The company is expected to maintain its FY25 revenue growth forecast of 3-5 per cent.

On the overall IT sector, brokerage firm Motilal Oswal in its note said, “The brutal winter of discretionary spend cuts in the industry is likely over, but there is little evidence of a recovery in the flow business. Hence, we are on track for one of the weakest first quarters for at least 10 years. The situation, though slightly better, is eerily similar to what we witnessed in 1HFY24. We would be looking for signs of recovery in discretionary spending in the form of deal activities, which have been heavily skewed towards cost-takeout projects.”

The brokerage added that revenue growth of Tier-I IT companies in Q1FY25 is estimated to be in the range of -0.5% to +2.0% QoQ in CC. Revenue of Tier-II IT players is expected to grow by -1.5% to +5.0% QoQ in CC terms.