Trump tantrums and client rethinks likely to slow IT recovery

Elevated regulatory and economic uncertainties caused by the Trump administration’s policies, along with sporadic pauses on IT budgets by corporate clients, are likely to delay or derail a recovery for India’s $280 billion IT services sector.

Analysts expect IT industry revenue to have dropped as much as 1.3% sequentially in the fourth quarter ended March 31, with their forecast for the best-case scenario limited to 0.3% growth. Margins are likely to show impact of seasonal weakness, deal ramp downs and continued constraints on discretionary spending by clients. They believe this scenario to have helped mid-tier firms outpace their larger rivals in growth.

In the new fiscal year, clients are expected to continue prioritising cost take out and vendor consolidation deals, at least three analyst reports stated.

Bellwether Tata Consultancy Services will open the earnings season on April 10. Wipro will announce results on April 16 and Infosys a day later, while HCLTech is scheduled to declare its numbers on April 22.

“We expect aggregate revenues for our coverage to decline by -0.4% QoQ cc (quarter on quarter in constant currency terms) and +4.3% year-on-year cc,” according to a Jefferies equity research report on the IT services sector’s Q4 earnings.

“We expect 4Q revenue growth will be impacted due to seasonality (Infosys/HCLTech), ramp-downs/productivity pass-throughs (TCS, HCLTech, LTIMindtree, Wipro, Tech Mahindra) and slower-than-expected recovery from furloughs,” the report added.

A JM Financial report predicted a weak results season for the industry, citing sporadic instances of deal pauses and even ramp-downs through the quarter.

“We therefore expect the companies (who give guidance) to be in the bottom-half of their guided band,” the brokerage firm said in a March 31 report. It expects large-cap companies to report up to a 1.4% sequential fall in revenue, and mid-caps to outperform with growth of 0.6-3.3%.


All currencies have depreciated against the dollar in the past quarter, hence foreign exchange movements will work against the software service exporters.

Jefferies expects the forex impact to reduce margins by 70-80 basis points (0.7-0.8 percentage point) for TCS, Tech Mahindra and mid-sized Coforge.

Most reports expect mid-tier companies including Coforge, Persistent Systems and Mphasis to report sustained growth. KPIT, among auto engineering, research & development companies, is likely post 3% growth in constant currency.

Overall, any slowdown in the US banking, financial services & insurance (BFSI) could be concerning. “Current environment limits visibility. But our baseline hypothesis is deferral in spend, instead of curtailment,” JM Financial said.

In an April 1 report, Kumar Rakesh, IT analyst for BNP Paribas, said: “IT services demand, especially discretionary, is unlikely to be left untouched from this slowdown. Investors have accordingly slashed growth expectations sharply … and now expect FY26 revenue growth to be weaker than in FY25.”

The BNP report expects margins to remain largely flattish from the previous quarter. “While some firms may see a compression on account of deal ramp downs and wage hikes. We see companies building some caution in their FY26 guidance.”

Further, “We cut our FY26-27 earnings estimates by 1.5-10% as we bake in the near-term demand slowdown pushing back demand recovery”, the BNP report added.

Meanwhile, Accenture’s guidance last month, narrowing its growth forecast to 5-7% from 4-7% amid client budgets expected to remain flat, has provided some comfort to Indian companies about FY26 demand growth.