INDUSTRY
FY26 more challenging than FY25 for IT companies amid hike in US tariffs
- IBJ Bureau
- Apr 08, 2025
The rise in tariffs by the United States government could add to the challenges of the IT services industry, according to a report released on Monday.
The report highlights that these tariffs could lead to higher inflation and slower economic growth globally with an increased risk of recession in the US and other developed economies.
“Uncertainty at the beginning of the (financial) year would lead to deferred decisions and impact growth in the June quarter. This means that FY26 could now end up being worse than FY25 for many of the companies,” said a report by Kotak Institutional Equities.
The report has reduced FY2025-27 revenue growth by 1.2 to 3.4 per cent and EBIT margins by 10-50 basis points, leading to earnings per share cut of 1.6-5.8 per cent.
The uncertainty is also accentuated as the tariff scenario can play out in different ways.
“The range of outcomes possible increases uncertainty. We lower target PE multiple by 1-2 times to account for these increased uncertainties. Overall, we cut fair values for stocks by 2-10 per cent,” said the report.
Companies like Infosys and HCL Tech will be under scrutiny because of the new headwinds in the global macro-guidance by the companies.
The report suggests that “companies might prefer a conservative stance, given higher uncertainty in the near term and the lack of mega deal-driven revenues in FY26. It may be prudent for companies to defer guidance until there is more certainty on the demand environment or restrict guidance to the next quarter, where there is a higher degree of visibility”, the report adds.
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