The IT sector is going to kickstart the earning season with HCLTech and TCS going to release its Q3FY26 on January 12. Elara Capital predicts margins to be under pressure, deal momentum to continue and Attrition to see an uptrend.
Here are 3 factors that are expected to shape the earnings performance for the Indian IT sector.
Revenue growth to be impacted by Furloughs, utilisation
Nuvama said that Q3 revenue of most IT services companies under its coverage will be impacted from furloughs and lower utilization just like what had happened in the previous years.
TCS is expected to report flat quarter-on-quarter (QoQ) growth, because of the same. However, growth in the India business may offset the weakness in overseas markets due to furloughs.
Other large cap IT firms, Infosys is expected to see a 0.5% QoQ revenue decline, according to Nuvama, mainly due to usually weaker second half performance.
Only HCLTech among large cap IT firms is predicted to report about 2% QoQ growth, supported by a seasonally strong Products & Platforms business and recovery in retail, CPG, and healthcare.
Midcap IT firms to outpace large peers on sequential growth
While revenue may be affected across sector, Midcap IT companies are expected to deliver stronger sequential growth than large-cap firms.
Among large players, Elara expects TCS to report flat sequential revenue growth. Infosys may see a 0.5% QoQ decline in USD revenue. Wipro is expected to post around 0.5% QoQ growth, aided by the Phoenix deal ramp-up. HCLTech is expected to outperform peers, with around 2% QoQ USD revenue growth, driven by a seasonally strong products and platforms business and recovery in retail, CPG and healthcare.
Despite this, Elara expects Infosys to maintain its FY26 revenue growth guidance of 2–3%, while HCL Tech is likely to retain its 3–5% growth outlook.
Among mid cap firms Coforge and Persistent Systems are likely to report over 3% QoQ USD revenue growth, supported by strong deal execution.
LTIMindtree and MphasiS are expected to post 1–2% QoQ USD revenue growth.
Margins under pressure despite cost control
Elara Capital noted that margins, across the sector, are also likely to face pressure due to annual wage hikes, furloughs and lower utilisation.
TCS and Infosys are expected to see margin contraction of 30–40 basis points sequentially, while Wipro’s margins may dip due to deal-related costs and the low-margin Harman business.
HCL Tech is expected to buck the trend, with margins improving on the back of strong product seasonality and rupee depreciation. Tech Mahindra and LTIMindtree may also see modest margin expansion due to cost rationalisation.
In the previous quarter IT sector was facing global uncertainties, this quarter it is likely to be affected by furloughs, lower utilisation and high wages. Elara capital expects mid IT firms to perform better than large firms and also expects attrition to rise as talent moves to global capability centres.