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Business Standard

HCL Technologies, Tech Mahindra lift veil on Q1 IT industry outlook

By Justina T. Lee, Rachel Yeo, Harshita Swaminathan & Reina Sasaki Indian software leaders HCL Technologies Ltd. and Tech Mahindra Ltd. will offer more insights into IT services sector's future when they report earnings this week after bigger rival Tata Consultancy Services Ltd. posted a fall in first-quarter sales on cautious client spending. Quarterly sales across India's computer services and IT firms are projected to have slid 0.6 per cent sequentially, Jefferies analysts Akshat Agarwal and Ayush Bansal said in a note previewing the sector. Softer seasonal performance is seen as the main drag on earnings, though could be partly offset by US dollar depreciation boosting firms like HCL Technologies, Tech Mahindra, and Coforge Ltd., which have a higher exposure to Europe. On Thursday, Tata Consultancy Services Ltd. reported a 3 per cent annual decline in sales for the first quarter through June on a constant currency basis as clients were cautious on technology spending due to global trade and geopolitical uncertainties. This also signals it's doubtful that tech services industry will recover this year from deteriorating spending. Looking ahead, deals are likely to continue at a steady pace as clients keep looking at software solutions to optimize operations, Jefferies said, though noting that discretionary IT spending remains under pressure. Meanwhile, Taiwan Semiconductor Manufacturing Co.'s US expansion plans will be in focus after the Senate passed a tax bill that would make it cheaper for chipmakers to build plants there. TSMC will be eligible for an investment tax credit of 35 per cent if it breaks ground on new plants before a 2026 deadline.