India’s information technology (IT) companies are about to report their second quarter results (Q2FY27)  Will the numbers cheer investors?  JM Financial expects another soft quarter for the large companies and has tweaked their picks accordingly. 

The Nifty IT Index has gained around 3% over the past three months and outperformed the Nifty by about 7%. As per the JM Financial report, this was driven partly by an in-line first quarter and easing concerns around disruption from artificial intelligence. 

JM Financial revises target prices for IT stocks

JM Financial has retained its existing ratings across its IT services coverage while making selective changes to target prices. 

They have an ‘Add’ rating on TCS, with the target price raised marginally to Rs 2,375. Infosys also retains its ‘Add’ rating, with the target moving to Rs 1,130. HCL Technologies remains a ‘Reduce’, while its target price has been increased to Rs 1,135.

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Tech Mahindra continues to have an ‘Add’ rating, with JM Financial raising its target price to Rs 1,705. 

Wipro has been rated  ‘Reduce’, with its target unchanged at Rs 160. Meanwhile, JM Financial retained its ‘Reduce’ rating on LTM with the target price revised marginally lower to Rs 3,965.

Here’s what the brokerage house is saying – 

IT sector: Why Q2 may remain difficult

The second quarter is usually seasonally stronger for IT companies. That had raised expectations of some improvement in growth.

But the industry continues to face macroeconomic uncertainty, artificial intelligence-led productivity pressure and higher competition.

The industry is also entering its fourth year of subdued growth. JM Financial noted, “Net-net, we expect another soft quarter for most large tiers”

JM Financial expects constant-currency sequential revenue growth between -0.5% and 2.6% for large-tier companies in the second quarter of FY26-27.

Tech Mahindra, TCS and Infosys get Add ratings

JM Financial has an ‘Add’ rating on Tech Mahindra, Tata Consultancy Services and Infosys.

The brokerage expects Tech Mahindra to have better growth visibility in the second quarter, supported by the ramp-up of large deals.

The report added, “We have already initiated the following pair trade in the large-tier space (note) – OW (overweight) Tech Mahindra versus UW (underweight) Wipro”

Tata Consultancy Services remains an Add-rated stock as JM Financial expects deal total contract value of $8 billion to $10 billion in the second quarter.

For Infosys, however, the brokerage expects a possible change in guidance. The company currently expects 1.5% to 3% constant-currency year-on-year revenue growth in FY26-27.

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JM Financial on IT sector: Rates 3 stocks Reduce

JM Financial has a ‘Reduce’ rating on HCL Technologies, Wipro and LTM.

For HCL Technologies, the brokerage expects the company’s guidance range to narrow. Acquisitions, including HPE’s telecommunications business, could provide some additional growth support.

Wipro remains a concern on the growth front. “Wipro continues to lag its peers in growth in Q2FY27,” added the JM Financial report.

The brokerage expects Wipro to guide for sequential constant-currency revenue growth of -1.5% to 0.5% for the third quarter.

LTIMindtree is also rated ‘Reduce’, with second-quarter deal total contract value expected at $1.4 billion to $1.5 billion.

IT sector: Margins may not get much help

The Indian rupee has depreciated only around 1% sequentially during the quarter. JM Financial therefore does not expect a significant margin improvement, particularly while revenue growth remains weak.

JM Financial report said, “the absence of meaningful rupee depreciation limits the scope for margin expansion”

What investors need to watch

The key issue for the IT sector is whether demand actually improves or remains stuck in a prolonged slow-growth phase. JM Financial believes artificial intelligence-related productivity pressure and competitive intensity will continue to influence the sector.

“No meaningful improvement in demand, continued AI-led productivity pressure and rising competitive intensity point to another soft quarter for large Indian IT,” JM Financial report added. 

Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This 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 before making any investment decisions.