As the fiscal fourth quarter earnings season is now nearing its end, most leading IT services companies have already reported their Q4 results. A review of their performance indicated that the sector ended FY25 on a soft note, in line with expectations. An analysis report by JM Financial maintained that the fourth quarter revenues for the IT sector declined by 0.6–3.5 per cent in constant currency terms across the top players, with five out of the six missing estimates. “Elevated uncertainty towards quarter-end compounded an already weak set-up – lower working days, higher third-party items in the base, etc. Players’ outlook, at the time of earnings, came against the backdrop of unprecedented tariff-war. Unsurprisingly, they cited limited near-term visibility. Their full year outlook was however resilient,” JM Financial said.
Yet, resilient full-year commentary and record order backlogs hint at a potentially better FY26, suggesting that the worst may be behind for the sector.
The easing of US-China trade tensions, the report maintained, should help improve market sentiment even as the uncertainty lingering until more clarity comes on long-term tariff policies could delay decisions on large IT transformation projects. Additionally, the recent rush to import goods may shift focus to managing working capital, temporarily affecting IT services spending.
While valuations have rebounded from pessimistic lows, analysts urge caution, highlighting that sustainable stock performance will hinge on actual earnings upgrades.
How was Q4 for IT sector? How’s the growth outlook looking?
During the fourth quarter, growth divergence among large and mid-caps continued. Top 6 IT companies reported 0.6- 3.5 per cent cc QoQ decline. JM Financial said, “Mid-caps under coverage grew (0.2)-4.2 per cent cc QoQ, with two out of four beating estimates. Large-cap growth was impacted by lesser billing days, lower third-party revenues (INFO, TCS, LTIM), client specific factors (HCL – Retail; TECHM – Hi-Tech). Mid-caps, on the other hand, grew on the back on recent deal ramps. Auto ER&D growth (TATATECH/KPIT) met expectations, a positive. So did BPO players. Margins were in-line, across cohorts, except IKS which beat.”
This quarter, most IT players sounded upbeat about full year prospects even as they flagged off limited near-term visibility. Wipro guided for a -3.5 per cent to -1.5 per cent QoQ decline in constant currency for Q1FY26. The full-year outlook by the IT sector was more reassuring. Infosys and HCL Tech’s FY26 guidance implied a quarterly growth rate of 0.4 per cent to 1.9 per cent, which is reasonable given the current environment. TCS also hinted at a stronger FY26, excluding the BSNL deal. This outlook, JM Financial said, seems to stem from their record order-backlog. The top six IT firms have reported total contract wins (TCV) of around $180 billion over the last two years, with a book-to-bill ratio of 1.07x. The actual ratio is likely higher, since not all firms disclose full TCV data.
Among companies that report full TCV, book-to-bill ratios (excluding Coforge) ranged from 1.4x to 1.6x. JM Financial’s analysis of deal share over the last 12 months indicated that TCS, Wipro, and Capgemini have lost some ground to Accenture, Cognizant, and LTIM. However, TCS regained some share in Q4 courtesy of strong deal wins.
Notably, several mid-cap firms like Mphasis, Coforge, and HCLTech have secured large deals—some even at the expense of larger players—highlighting rising competitive intensity. Going forward, the brokerage firm said, IT companies will have to carefully balance gaining or protecting client share while keeping margins under control.
To conclude, JM Financial said, in the short term, tariff-related uncertainties could affect IT spending patterns, and companies are not expected to upgrade guidance yet. Among large caps, it’s best to stick with those offering valuation comfort, the brokerage firm said while keeping TCS and Infosys as its preferred picks.