IT Companies See Strongest Recovery in 18 Months in Q3FY25

IT Sector Bounces Back in Q3FY25

The third quarter of FY25 (Q3FY25) marked a pivotal moment for India's IT services sector, with companies showcasing their strongest recovery in 18 months. The quarter ending December 31, 2024, showcased improved constant currency revenue, deal wins, and operating margins despite the challenges of a seasonally weak period marked by furloughs.

Sectoral and Geographical Growth

While Q2FY25 focused on recovery in the BFSI (banking, financial services, and insurance) sector and the North American region, Q3FY25 saw growth expand to other verticals and geographies, including the Eurozone.

Discretionary Spending on the Rise

Top IT firms have adopted a cautiously optimistic stance on discretionary spending, citing early signs of recovery. Key areas of focus include AI, cloud infrastructure, and digital transformation.

TCS CEO K. Krithivasan highlighted the revival: "Early signs of discretionary spending and strong TCV (total contract value) wins give us confidence for 2025." Infosys and HCLTech also reported a measured increase in client investments, especially in financial services, retail, and Gen AI projects.

However, firms like HCLTech warned of phased ramp-ups and delayed revenue conversions, which could temper growth expectations in the short term.

Generative AI: A Key Driver

Generative AI (Gen AI) emerged as a significant growth driver in Q3FY25, moving beyond pilot stages to active deployment in client operations.

• TCS reported that Gen AI revenue constituted about 10–12% of its overall revenue last quarter and trended upward in Q3 FY25.
• Infosys developed over 100 Agentic AI solutions and expanded its small language model offerings, underlining its focus on advanced AI capabilities.
• HCLTech reduced the cost of implementing large language models by over 85% compared to early 2023, enabling more viable AI use cases.

Employment Trends and Sector Outlook

The top five IT companies added over 10,000 employees in the first nine months of FY25, reflecting cautious hiring after workforce reductions last year. Both freshers and lateral hires have re-entered the hiring mix, signalling a gradual revival in demand.

While the recovery in Q3FY25 has brought optimism, experts caution that the actual test will come in Q4FY25, when client IT budgets for calendar year 2025 are finalized. The sector appears poised for a potentially more robust performance in the upcoming quarters.