Indian IT firms are set to release their Q4FY26 results over next few weeks amid concerns about AI disruption and global uncertainties. JM Financial believes while the “sector rerating is unlikely to happen if concerns over the impact of Gen AI continue” investors are likely to focus on FY27 guidance and orderbook.
JM Financial said it prefers Infosys among large cap IT companies, citing potential upside from improving guidance. In the mid-tier space, Mphasis is favoured due to its relatively better growth outlook. Among BPO players, Sagility stands out for its consistent performance. “We remain selective and prefer stocks underpinned by reasonable operational visibility,” JM Financial added.
GenAI fears, Middle East tensions dent IT sector outlook
JM Financial noted that the Q4 (February- April) season started on a positive note following the Q3 earnings season, optimism faded in February and March due to rising concerns around Generative AI and geopolitical tensions.
In January, IT stocks outperformed, with NSE IT beating the Nifty by around 4%. However, sentiment turned negative in February and March, leading to an underperformance of nearly 15%. “On top of this, the emerging Middle East crisis introduced an additional layer of uncertainty for IT Services companies. While Generative AI represents a structural concern for investors, the Middle East crisis has raised questions on near-term risks,” JM Financial noted.
However, they noted that the depreciation of the Indian rupee has offered some relief. “Rupee depreciation is the only relief for Indian IT—it is likely to support margins in the near term,” they said.
JM Financial expects investors to focus on FY27 revenue guidance and order books as key indicators of future growth.
IT sector: FY27 guidance in focus
Guidance for FY27 will be closely tracked by investors. Infosys is expected to project revenue growth of 2% to 4%, with margin guidance in the range of 20% to 22%. “Infosys had indicated earlier that financial services and Europe, which make up 40% of the revenue portfolio, will likely do better in FY27 versus FY26.
Wipro is likely to guide for flat to marginally negative growth in the June quarter, mainly due to delays in deal ramp-ups. HCLTech, on the other hand, is expected to guide for 4% to 6% growth in its IT services business and 3% to 5% growth overall, with margins seen between 17.5% and 18.5%.
Muted growth expected in Q4FY26
For the March quarter, analysts expect mixed performance across the sector. Revenue growth for top IT companies is likely to range between a decline of 0.7% and growth of 7.4% year-on-year, impacted by fewer working days.
Mid-tier IT firms are expected to perform better, with revenue growth projected between 3% and 22% year-on-year, led by strong momentum in select companies. The ER&D segment is also likely to remain resilient, with steady growth driven by both organic and inorganic factors.
The BPO segment is expected to be the most stable, with companies like Sagility likely to report strong double-digit growth. Meanwhile, rupee depreciation of around 2.7% quarter-on-quarter is expected to partially offset margin pressures from wage hikes and slower growth.
Global peers signal steady demand
Global IT companies have offered a relatively stable outlook. Accenture has revised its FY26 revenue growth guidance to 3% to 5% in constant currency, while maintaining its assumptions around the Middle East situation. The company noted that client spending in calendar year 2026 is likely to remain similar to 2025.
Cognizant has guided for 4% to 6.5% revenue growth in CY26, with organic growth expected between 2.5% and 5%, indicating a modest improvement over last year.
Conclusion: Valuations under pressure, rerating unlikely
Despite recent corrections, the sector continues to face valuation pressures. NSE IT is currently trading at around 18 times FY27 estimated earnings, but a rerating appears unlikely if concerns around Generative AI persist.
Analysts have slightly revised earnings estimates for FY26–FY28 to factor in exchange rate changes and operational adjustments. They have also lowered valuation multiples across the sector due to continued uncertainty.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.