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Indian IT Firms Brace for Weak Quarter Despite Currency Boost

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India’s leading IT services companies, including Tata Consultancy Services, Infosys and HCLTech, are expected to report subdued fourth-quarter results, with growth driven more by currency effects than underlying demand.

Brokerage estimates suggest revenue and profit will rise roughly 10% year-on-year. However, much of that increase is attributed to the depreciation of the Indian rupee, which boosts earnings when dollar-denominated revenues are converted into local currency.

On a constant currency basis—excluding exchange rate effects—growth remains weak, with top firms expected to post only modest gains. Analysts highlight ongoing macroeconomic uncertainty, geopolitical tensions and cautious client spending as key factors limiting expansion.

Discretionary IT spending continues to lag, particularly in sectors such as retail, healthcare and technology, while banking and financial services remain relatively stable. Longer deal cycles and a shift toward cost optimisation projects are also constraining revenue momentum.

The sector is also facing structural concerns related to artificial intelligence. New capabilities from firms like Anthropic and Palantir are raising questions about whether traditional IT outsourcing models could be disrupted.

Forecasts for the next fiscal year remain conservative. Infosys is expected to guide for 2%–4% growth, while HCLTech may project 4%–6%, reflecting continued caution among enterprise clients.

The broader $315 billion Indian IT sector, employing nearly 6 million people, has struggled to regain the double-digit growth rates last seen in 2023. Stock performance reflects these concerns, with IT shares significantly underperforming the wider market this year.

Analysts note that valuations now imply low growth expectations, meaning even modest improvements in outlook could support share prices. However, a sustained re-rating will depend on whether companies can demonstrate resilience and adaptation in an AI-driven environment.

Wipro Shares Rise After $375M Olam IT Acquisition

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Wipro shares gained after the company announced it would acquire the IT services business of Olam Group for an enterprise value of $375 million, marking its largest acquisition to date.

The deal involves the purchase of 200 million shares of Mindsprint, Olam’s IT and digital services arm, through Wipro Networks. Mindsprint provides services across multiple sectors including agribusiness, manufacturing, retail, healthcare and cybersecurity.

Investors responded positively, pushing Wipro’s stock higher in early trading and making it one of the top performers on India’s IT index. Analysts noted that the acquisition strengthens Wipro’s domain expertise, particularly in the food and agribusiness vertical, while also enhancing its consulting and platform capabilities.

A key component of the transaction is a long-term commercial agreement. Olam has awarded Wipro an eight-year services contract with a committed annual spend of $100 million, implying a total contract value exceeding $1 billion. This provides strong revenue visibility and a more stable, recurring income stream.

Market analysts highlighted that the deal goes beyond traditional outsourcing by integrating intellectual property-led platforms and creating a “captive” delivery relationship, which tends to be more strategic and harder to replace.

Despite the positive reaction, Wipro’s shares remain significantly down year-to-date, reflecting broader challenges in the IT services sector, including weak discretionary spending and uncertainty around the impact of artificial intelligence on traditional business models.

The acquisition signals Wipro’s effort to reposition itself toward higher-value, industry-specific services as competition intensifies and growth slows across the global IT outsourcing market.

Software Stocks May Rebound

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U.S. software and IT services stocks could continue their recent recovery, according to a note from Goldman Sachs’ prime brokerage division.

The sector has faced significant declines this year, with valuations dropping sharply amid shifting market sentiment. However, a recent uptick suggests potential for further gains despite high levels of investor skepticism.

Data indicates that hedge funds currently hold unusually large short positions in software and IT services companies, reflecting expectations of continued weakness. At the same time, long positions remain near historic lows.

Analysts believe that the imbalance between bearish positioning and improving market performance could support additional upside if sentiment shifts.

The outlook highlights ongoing volatility in technology equities as investors reassess growth prospects in a changing economic environment.