India’s IT services sector, valued at over $282 billion, is preparing to release its fourth quarter (Q4FY25) earnings, starting with Tata Consultancy Services (TCS) on April 10. This quarter is crucial as it marks a period of economic uncertainty, largely driven by the return of Donald Trump’s protectionist trade policies, weakening macro indicators in the US, and fears of a slowdown in tech spending. Given that North America contributes over 60% to India’s IT revenue, these earnings will offer key signals about how companies plan to navigate FY26.

Revenue Growth Under Pressure

The January-March 2025 quarter is not expected to show strong performance, particularly for top-tier IT firms such as Infosys, TCS, Wipro, and Tech Mahindra.

According to analysts at Kotak Institutional Equities, the sector is experiencing a sequential revenue decline driven by:

• Seasonal weakness

• Fewer billing days

• Deteriorating demand

• Client-specific issues, especially in firms like LTIMindtree

A major concern arose after Citigroup, a key LTIMindtree client, announced plans to cut external IT contractor share to 20% from 50%.

Kotak estimates Infosys will guide for 1–4% growth and HCLTech for 3–5%, signaling minimal optimism for FY26. Notably, this guidance includes 100 bps growth from HCLTech’s recent acquisition.

On the other hand, mid-tier companies such as Persistent Systems, Coforge, and Mphasis are expected to report stronger Q4FY25 results, benefiting from agility and niche offerings.

Impact of Trump Tariffs and US Economic Uncertainty

The reimposition of reciprocal tariffs by the Trump administration has become a dominant theme for the sector.

According to HFS Research, the new tariffs—pegged at 26% for Indian exports to the US—are higher than the previously anticipated 20%, causing significant concern. This, coupled with AI disruptions and macroeconomic stress, has led to what they describe as “the foundations of the IT services industry being rattled.”

BNP Paribas warns of a potential stagflation or recession, while budget cuts under the Department of Government Efficiency (DOGE) led by Elon Musk are already impacting companies like Accenture.

Adding to the troubles is the uncertain future of the H-1B visa program—crucial for bringing Indian tech talent to the US. Although major IT firms claim less than 50% dependency on H-1B visas, the reduction affects long-term project staffing and delivery.

The Trump administration’s local hiring focus further pressures companies to localize operations, raising costs and complexity.

Deal Pipeline Offers a Silver Lining

Despite the challenging backdrop, deal activity remains relatively healthy.

According to Nuvama Institutional Equities:

• Cost takeout contracts are dominating the scene

• Some improvement is noted in discretionary spending, particularly in BFSI (Banking, Financial Services & Insurance)

• Margins are expected to stay stable, unless impacted by wage hikes

While Total Contract Value (TCV) may remain subdued due to fewer large deals, Annual Contract Value (ACV) is reportedly improving. This shift suggests that discretionary demand may be on the path to recovery.

Brokerages believe the delayed project execution and ramp-downs seen in FY24 are easing, opening the door for better revenue conversion from signed deals.

Additionally, valuations have corrected below five-year averages, improving the risk-reward profile for investors.

Even if the US enters a recession, cost-saving IT projects could continue driving deal momentum.

Cautious Guidance for FY26 Expected

Given the volatility in the global macro environment, IT companies are expected to issue muted guidance for FY26.

Infosys is projected to guide for a 1–4% revenue growth, with HCLTech in the 3–5% range. In contrast, Wipro could show no to minimal growth, guiding for a -0.5% to 1.5% sequential change for Q1FY26.

Margin guidance is likely to stay stable:

• Infosys: 20–22%

• HCLTech: 18–19%

Motilal Oswal and Nomura both anticipate soft forward-looking statements, citing weak discretionary spending and fewer mega-deals. Companies are expected to maintain a conservative tone, focusing on cost efficiencies and productivity gains.

Generative AI: A Bright Spot Amid Headwinds

Generative AI (Gen AI) is becoming central to the future strategies of IT services firms.

Accenture recently reported that $1.4 billion in new bookings (7%) in Q2FY25 came from Gen AI projects, out of a total of $20.9 billion. The company has already recorded $5.6 billion in AI revenue.

Following Accenture’s lead, Indian IT majors are now investing in Gen AI capabilities, which are being used in:

• Customer service automation

• Software development acceleration

• Business intelligence solutions

Kotak believes that AI-led solutions are being deployed early as clients aim for productivity savings amid mounting cost pressures.

HDFC Securities notes an industry-wide move toward AI-linked pricing models, while Nomura warns that early Gen AI productivity benefits may wane in a few quarters.

Brokerage Centrum states that AI tools can improve revenue per employee, which is crucial in a market focused on operational efficiency.

Conclusion

India’s IT sector is heading into Q4FY25 earnings season under the shadow of:

• Trump’s tariff strike

• US economic slowdown

• Uncertain visa and hiring policies

Yet, not all is gloomy. Mid-tier firms are showing resilience, deal pipelines remain healthy, and AI adoption is accelerating.

As TCS kicks off the earnings on April 10, analysts, investors, and clients alike will closely watch:

• Revenue performance

• FY26 guidance

• Commentary on AI and deal wins

With both threats and opportunities in view, FY26 could be a make-or-break year for India’s tech giants.

The Upcoming IPOs in this week and coming weeks are Aten Papers & Foam.

The Closed IPOs are  Infonative Solutions Limited, Spinaroo Commercial Limited,Retaggio Industries Limited.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in .Choice Broking FinX