Trump tariffs: IT budgets to be trimmed; companies might provide muted guidance for FY26, say analysts
BENGALURU: IT services companies will report their Q4(January to March) FY25 earnings starting with Tata Consultancy Services on April 10 and analysts expect a weak exit for FY25 and unexciting guidance for FY26 due to rising global uncertainty. Wipro and Infosys will present their Q4 financial results on April 16 and 17, respectively.
"Budgets will be trimmed, and tech spends will be redirected toward extreme efficiency and resilience," said Motilal Oswal Financial Services in its report.
It said the full impact of tariffs will take time to unfold and discretionary spend is likely to be put on hold again. "We expect the next 3-6 months to bring negative news flow—including earnings cuts and potential pullbacks in FY26 guidance," it said in a note.
HDFC Securities expects most of the large IT companies to register revenue decline in Q4 FY25 ranging from -1.8% to +0.1% QoQ (-1.6% to +6% in YoY terms) due to a weak demand environment, lower billing days, and lower discretionary spends. Q4 revenue growth expectations for mid-tier ranges from +3.7% QoQ to -4.7% QoQ. Within tier-1 IT, Infosys is expected to lead the fall with 1.8% QoQ decline, followed by 0.5% QoQ decline for TCS, HCLTech, Wipro and Tech Mahindra.
The brokerage expects IT sector growth for FY26 to be at 5.3%, which is slightly better compared to FY25 (3.4%).
As far as hiring is concerned, Kamal Karanth, co-founder of Xpheno, a specialist staffing firm, said the tariffs at this point are focussed on the trading, manufacturing and impex corridors.
"The spillover of the tariffs' impact into the shipping of jobs and consumption of services cross border is imminent. But the near-term impact at this point is largely a notable knee-jerk drop in active talent demand. This has been evident in the last three to four weeks, with the fiscal end cleanup and reset of talent demand clubbing with a cautionary removal of active demand from certain cohorts," he told TNIE.
According to him, the cyclic reset and knee-jerk market reactions have collectively driven 70,000 to 80,000 active openings out from the active demand funnel in India. "The current active demand in the funnel is in the 220,000 to 240,000 range, as compared to the 310,000+ seen in February this year," he added.
The IT Services cohort as a key beneficiary of service imports by the US, has already been on the simmer awaiting stabilisation of technology spend and consumption. Further serviceability of the US market with the visa linked changes and challenges has also had its impact. The tariffs will hence have a lower near-term impact on this cohort, that has already moderated, he further added.