IT companies reported marginal year-on-year growth in margins despite global headwinds but suffered sequential decline in the quarter ending March 31, 2025. Analysts however expect improvement in margins in future quarters due to the good deal pipelines reported by companies in the sector.
On an annual basis, India’s overall IT sector (Tata Consultancy Services or TCS, Wipro, Infosys and HCL Tech) grew 50 bps. However, on a sequential basis, nearly every company reported a slight decline. Wipro managed to keep margins flat at 17.5 per cent while TCS and Infosys both reported a 30 bps decline. HCL Tech slipped to 17.9 per cent margins.
Despite these hurdles, Care Edge Research told businesslinethat it expected companies’ margins to improve over coming quarters.
“We are seeing an increase in deal wins in Q4. TCS has shown deal win increase from $12 billion to $12.2 billion. Guidance from TCS and Infosys is good, around 4-5 per cent of cc growth. So, margins will either stabilise or improve. Some part of this will also be contributed by use of AI for various operations. As per the guidance given by companies, the global economic slowdown hasn’t affected deal wins,” said Care Edge.
According to Greyhound Research, the FY26 margin recovery will hinge on companies’ ability to modernise delivery models, extract automation gains, and renegotiate legacy constructs to reflect the new risk-cost balance. Many wins carry delayed realisation profiles and unpredictable profit curves, said the research firm.
Infosys sets margin guidance at 20-22%
Infosys set its FY26 margin guidance at 20-22 per cent, as per Salil Parekh, CEO and MD of Infosys. On Q4 margins, Jayesh Sanghrajka, Chief Financial Officer (CFO) attributed the 30 bps sequential decline to employee compensation.
“A large part of our employees got compensation increase effective January 1 and that was impacted by 140 basis points. We had 40 basis points on account of amortization of intangibles for the acquisition that we made. So, those were the headwinds that was offset by lower post-sale customer support – 80 basis points, 20 basis points on currency, 30 basis points on Project Maximus and 20 basis points because we had a lower third-party cost,” he said, adding that for the full year, margins expanded by 50 bps, with large deals ramping up during this period and an acquisition.
Motilal Oswal Financial Services said, “Passthrough revenues for FY26e could be materially lower[for Infosys], and this could provide a good lever for margin expansion in FY26e. While there could be a wage hike impact in the coming quarter, we believe margins could expand around 30bp for the full year on the back of lower pass-through revenues.”
Wipro to maintain margins in a narrow band
Aparna Iyer, CFO at Wipro said the company’s FY26 plans will be to maintain margins in a narrow band in coming quarters considering the uncertain macroeconomic environment putting a downward pressure on revenues.
“There will be pressure on margins as we start Q1. There are two headwinds: a weak revenue environment and a lot of deals in the pipeline bring cost takeout and vendor consolidation deals. This inherently comes with pricing pressure and very competitively fought. Our endeavor would be to keep the margins in a narrow band,” said Iyer.
IDBI Capital observed that Wipro’s margins improved 100bps YoY due to operational efficiency & increased utilisation. Key margin levers include enhanced execution discipline, with utilisation improving to 84.6 per cent and an optimal range targeted at 85–87 per cent, a rising mix of fixed-price and transformational engagements, and ongoing cost optimisation initiatives.
“Margin trajectory is likely to mirror revenue trends, given the nature of new deals largely cost take-out and vendor consolidation-led, along with AI driven engagements but with limited contribution from high-margin transformational deals. We retain our HOLD rating, revising our target price to ₹260, valuing the stock at 20.5 times FY27E EPS,” said IDBI Capital, adding that it expects EBIT margins to be in range of 17 per cent in FY26E & FY27E.
TCS says headwinds due to tactical interventions
According to Samir Seksaria, CFO at TCS, Q4 margins stood at 24.2 per cent after incurring 100 basis points headwind due to tactical interventions. Those included primarily promotions, and a further 60 basis points headwind from strategy marketing and purpose-driven initiatives.
“We managed to mitigate some of these headwinds by improving our operating leverage and optimising our revenue mix. Furthermore, currency movements provided 40- basis point support,” said Seksaria.
Further, he said that if current uncertainties in the industry prevails, there may be lower operating leverage since utilisation will be impacted. Sudden contraction in demand delays or deferrals can impact margins. Moreover, the company may not enjoy the margin benefit coming from currency movement as seen in FY25. Nonetheless, the company remains bullish on its revenue growth with profitability and operating margins getting closer to 26 per cent.
ICICI Securities said TCS’s margins fall in line with its estimate, but fall lower than consensus estimate. It said, “The margin fillip from BSNL deal ramp-down, higher utilisation as well as rupee depreciation was offset by higher employee expense, other expenses, subcontracting cost, marketing expenses.”
HCL Tech margins to stay under pressure
HDFC Securities expected HCL Tech’s FY26E margins to stay under pressure going forward from the rate cut cycle coupled with higher secured mix, offset by downward normalisation of credit cost. Speaking on HCL’s low margins, Care Edge Research said that seasonality could also have played a factor for the low margins reported in this quarter.
Published on April 24, 2025
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