Indian IT firms, including Tata Consultancy Services (TCS Ltd.) and Infosys Ltd., are likely to face difficulties in meeting consensus operating profit estimates for the financial year 2024, according to brokerage firm Citi. To achieve these estimates, companies would need to report operating profit (EBIT) growth ranging from 5% to 78%, a challenging task in a slow-growth environment with weaker seasonality and pending wage hikes.

The IT sector typically experiences a seasonally weak quarter in December due to extended holidays, slowing down deal-making. The March quarter also sees wage hikes, which impact margin performance.

Citi noted that consensus operating profit estimates for the financial year 2025 also appear challenging due to a demanding macroeconomic environment.

While Indian IT companies have secured large deals recently, indicating a stabilizing deal pipeline, Citi expects these mega deals to be margin-dilutive initially.

“Given that valuations are not cheap in the historical context, earnings trends are still going to be important for the stock performance,” stated Citi analysts.

TCS is set to report earnings for the September quarter on October 11, followed by Infosys and HCLTech on October 12. Wipro and LTIMindtree will report their quarterly results on October 18.

Among Citi’s covered companies, Infosys and HCLTech are rated “neutral,” while the others carry a “sell” rating.

In the June to September quarter, the Nifty IT index rose 7.5%, with all 10 constituents posting gains. Mphasis led the index with nearly a 25% increase, while LTIMindtree saw a 0.2% gain.

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