HSBC has raised a red flag over the cash conversion trends in India’s IT services sector, highlighting that several companies reported a weakening in this key metric during FY25. The brokerage noted that mid-tier players were hit harder than their large-cap counterparts, with Coforge and Persistent Systems (PSYS) standing out as the weakest on cash flow generation.
Even among top-tier names, sector leader TCS showed a steady decline in cash conversion, suggesting underlying stress in converting revenue to actual free cash flow, which could weigh on investor confidence if the trend persists.
Despite these concerns, HSBC observed that the market continues to disproportionately value growth while giving limited weight to earnings quality—though that may be beginning to shift as investors start to scrutinize core fundamentals more closely.
As the sector heads into FY26, cash flow performance and working capital discipline are likely to emerge as key differentiators, especially amid rising global uncertainty and tightening IT budgets.
Disclaimer: This article is for informational purposes only and is based solely on brokerage reports and publicly available data. It does not constitute investment advice or a recommendation to buy or sell any securities. Readers are advised to consult a certified financial advisor before making any investment decisions.
