The earnings season begins with the announcement of earnings by Tata Consultancy Services (TCS) and HCL Technologies on Monday, January 12.
HDFC Securities sees mid-sized tech firms better positioned to deliver relatively stronger sequential performance. It has pegged tier-1 players to deliver a 0.6 to 2.1% sequential CC growth in Q3, while the tier-II companies are likely to post CC growth in the range of -1.8% to +3.4%.
ElaraCapital echoes a similar sentiment in its preview note, expecting midcaps to outperform largecaps in Q3. The revenue will be impacted by furloughs and lower utilisation in Q3FY26, it said, while noting that the deal momentum could continue across its IT services coverage universe, as clients continue to spend on next-gen technologies such as cloud transformation, data & analytics and AI.
Giving a company-wise break-up, Elara pegs 3% sequential growth in dollar revenue for Coforge and Persistent Systems. The next to follow are LTIMindtree and Mphasis, with USD revenue growth between 1-2%. Among large-caps, a QoQ revenue growth of -0.5 to +0.5% could be seen.
Deven Choksey Research also placed an onus on small & midcap stocks to lead the sector, although it estimated steady performance by IT majors.
“Smaller and emerging players in our coverage universe are expected to deliver relatively higher growth trajectories, driven by niche focus on AI, digital engineering, fintech, and specialised platforms,” the brokerage noted.The largecap companies are expected to post broad-based revenue growth led by large-deal conversions and ramp-ups in North America and Europe, Deven Choksey Research said.
Guidance
HDFC Securities anticipates Infosys to increase its FY26E revenue growth guidance by 1% to 3-4% while HCL Tech to retain its guidance of 3-5% (4-5% for Services) for FY26E. Wipro is likely to guide 0% to +1% QoQ for Q4FY26E, while L&T Tech is expected to uphold its double-digit growth outlook for FY26E, this brokerage said.
HDFC Securities said management commentary on demand outlook and client budgets for CY26 should witness some positivity, adding that margin guidance across companies is expected to remain stable, supported by currency and peak utilisation levels.
Share price performance
While IT stocks have been market laggards, with Nifty IT among the worst-performing sectors over the past 12 months, the last three months have seen a fightback from the sector, partly due to the rupee weakness.
The index return for Nifty IT over the last three months is 11% compared to a 14% fall over a one-year period. Barring Oracle Financial Services Software (OFSS), which slipped 14%, the rest have given positive returns of up to 22% over a three-month period. Persistent Systems tops the chart, followed by LTIM and Tech Mahindra with returns of 18% and 15%, respectively.
Tech Mahindra, Infosys and TCS have also given double-digit returns.
Stocks to buy
HDFC Securities
Buy Infosys | Target: Rs 2,100
Buy HCL | Target: Rs 1,940
Buy LTIM | Target: Rs 7,500
Buy Birlasoft | Target: Rs 530
Buy Sonata Software | Target: Rs 500
Buy Happiest Minds| Target: Rs 710
Buy Mastek 2,116 BUY 3,200
Add TCS | Target: Rs 4,000
Add Wipro | Target: Rs 290
Add TECHM | Target: Rs 1,770
Add Persistent | Target: Rs 7,570
Add Mphasis | Target: Rs 3,460
Add LTTS | Target: Rs 5,400
Add Tata Elxsi | Target: Rs 6,300
Add Zen Technologies | Target: Rs 920
Add Cyient | Target: Rs 1,430
ElaraCapital
Elara has a buy view on just one stock, which is Mphasis, while an ‘Accumulate’ on Infosys, TCS, LTIM, Tech Mahindra. It has recommended a ‘Sell’ on Wipro, Tata Elxsi, KPIT and Tata Technologies while a ‘Reduce’ on HCL, Persistent and Coforge.
Deven Choksey
Buy Infosys | Target: Rs 1,770
Buy Infibeam Avenues | Target: Rs 23
Buy TechM | Target: Rs 1,754
Buy TCS | Target: Rs 3,615
Accumulate: Persistent | Target: Rs 6,486
Accumulate: HCL | Target: Rs 1,628
Accumulate: Wipro | Target: Rs 287
Accumulate: Sonata | Target: 400
Accumulate: Happiest Minds | Target: Rs 579
Sell Tata Elxsi | Target: Rs 4,884
(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)