As Tata Consultancy Services prepares to report Q4 earnings, the Indian IT sector faces challenging conditions with subdued growth projections.
Tata Consultancy Services (TCS), the leading IT services provider in India, is poised to commence the fourth quarter earnings season for technology firms with its results set to be released on Thursday, 9 April. The fiscal fourth quarter, which concludes in March, usually benefits from the absence of employee leave patterns, especially in the banking, financial services, and insurance (BFSI) and retail industries. However, this positive aspect is partially counterbalanced by a reduced number of working days during the quarter.
The earnings forecast for the Indian IT sector for the fourth quarter of fiscal year 2026 suggests a muted performance, reflecting ongoing difficulties stemming from various uncertainties. This includes geopolitical tensions related to the US-Iran conflict, disruptions related to advancements in generative artificial intelligence (AI), and persistent worries surrounding tariffs imposed by the United States.
Notably, a substantial decline in the value of the Indian rupee against the US dollar during the period is expected to bolster the financial performance of the IT sector, with profit margins remaining stable overall. In this context, smaller Tier-2 IT companies are anticipated to continue outperforming their larger Tier-1 competitors.
According to predictions from Kotak Institutional Equities, TCS is expected to lead revenue growth among Tier-1 firms, while Persistent Systems is projected to be the frontrunner in the mid-tier segment. Among the top-tier IT companies, TCS is estimated to achieve a sequential revenue growth of 1.2% in constant currency terms, followed closely by Wipro, with a forecasted 0.5% growth. In contrast, Tech Mahindra’s revenues are expected to remain mostly unchanged sequentially. Conversely, Infosys is projected to experience a decrease of 0.8% in revenue, while HCL Technologies is likely to see a contraction of 1.6% due to seasonal influences.
Tier-2 firms are expected to maintain their upward trajectory relative to their larger counterparts. Persistent Systems is forecasted to report a 4.0% sequential growth, followed by Mphasis (2.3%), Coforge (2.0%), and LTIMindtree (1.5%). However, Hexaware Technologies may face a marginal decline of 0.6%.
Despite a tumultuous demand landscape, IT companies are likely to secure a steady flow of deals, with cost-reduction initiatives constituting a substantial portion of new contract wins. Predicted fluctuations in margins across several firms stem from wage increases and restructuring expenses, although these may be partially mitigated by operational efficiency gains and currency advantages.
Kotak Institutional Equities anticipates a year-on-year increase in earnings before interest and tax (EBIT) margins among the top six IT firms, with an expected rise between 40 to 320 basis points, credited largely to a 6.5% depreciation of the rupee against the US dollar.
Two main factors are expected to shape the future outlook for IT corporations. Elevated geopolitical risks from the US-Iran war contribute to global economic uncertainty and a lack of predictability in enterprise spending. Furthermore, productivity initiatives driven by generative AI, while potentially beneficial, may also exert deflationary pressures.
Forecasts suggest that Infosys may project revenue growth of 3-5% for fiscal year 2027 and HCL Technologies could also indicate similar growth prospects aided by its service offerings and substantial deal ramp-ups. HCL Technologies might raise its EBIT margin guidance, increasing to a range of 17.5% to 18.5%, up from 17% to 18% in fiscal year 2026.
Wipro, however, may project a decline of between 0% to -2% in revenue growth for the quarter ending June 2026, reflecting market share losses, delays in large deal implementations, and pricing pressures. Throughout fiscal year 2026, the IT sector has significantly underperformed relative to the broader market, driven by negative sentiments associated with generative AI and uncertainties surrounding tariffs.
Despite these challenges, Nuvama Equities holds a positive view on the longevity of the IT services model, asserting that disruptions from generative AI will ultimately lead to new opportunities. Following a notable decline in stock prices, the brokerage firm considers the valuations of IT stocks to be highly attractive, with reverse discounted cash flow analyses indicating very conservative estimates for future growth.
Nuvama now assigns a ‘Buy’ rating to all ten top IT services companies and expresses a preference for stocks from Coforge, LTIMindtree, Tech Mahindra, Mphasis, Persistent Systems, Infosys, and TCS.
