Challenges and Opportunities for Indian IT Sector: Navigating FY25 Headwinds

SBI Securities predicts a decline in margins for Indian IT companies in Q3 FY25 due to seasonal factors like fewer working days and wage hikes. Despite challenges, including geopolitical tensions and policy uncertainties, positive factors such as a strong deal pipeline and emerging tech offer potential growth.

According to a recent SBI Securities report, several Indian IT companies are expected to face margin declines in the third quarter of FY25. This downturn is attributed to seasonal weaknesses, including fewer working days and increased furloughs, alongside structural factors such as wage hikes.

The report underscores that the third quarter is historically challenging for the IT sector, compounded by policy uncertainties with the new U.S. administration, client-specific issues, and ongoing geopolitical tensions. Despite these hurdles, the sector maintains a cautiously optimistic outlook for the year.

Positive developments include favorable currency movements, a strong influx of deals, reduced attrition rates, and signs of recovery in discretionary spending within the BFSI sector. Additionally, mid-cap IT companies may lead growth due to emerging technologies like generative AI and cybersecurity.

(With inputs from agencies.)