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Tata Consultancy Services (TCS), a leading Indian IT services company, has expressed confidence in its ability to rebound in the fourth quarter of fiscal year 2025 (Q4 FY25), following a challenging period marked by a weak performance in the second quarter (Q2) and a traditionally slow third quarter (Q3) characterized by furloughs. The company's optimistic outlook stems from expectations that headwinds facing the industry will begin to stabilize in Q3 and pave the way for renewed growth in Q4.
Furloughs, a common practice in the IT industry, involve clients in regions like the US and Europe temporarily suspending work for outsourced employees from Indian IT firms, typically during the Christmas and New Year period. This practice often leads to a reduction in revenue for Indian IT companies, as clients refrain from compensating employees during these periods. TCS acknowledged the impact of furloughs and muted discretionary spending on its Q2 FY25 performance, but indicated that it expects these factors to ease in the coming quarters.
The company's CEO, K Krithivasan, emphasized the ongoing trend of clients prioritizing cost optimization programs, leading to a subdued demand for projects with low immediate returns on investment. However, he expressed confidence in the company's ability to sustain growth momentum in its key segments, particularly in the financial services sector in the US. This optimism is fueled by the recent easing of interest rates in the US, which is expected to boost consumer and industry confidence.
TCS believes that the current market uncertainties will eventually subside, prompting clients to resume investment activities. While the company doesn't anticipate an immediate rebound in Q3, it remains optimistic about a medium-term recovery. In addition, TCS acknowledged that investments in infrastructure and capacity building impacted its margins in Q2 FY25, but reiterated its target of achieving a 26 percent operating margin by the end of Q4 FY25. Despite the challenges of the recent quarters, TCS remains confident about its long-term prospects and is poised to capitalize on the anticipated growth in the IT sector.
Source: TCS expects growth rebound in Q4 FY25 after a seasonally weak Q3