IT stocks have shown resilience in the recent session after a period of weakness. The upcoming Q4 earnings seasons is also another reason why the tech sector stocks are in focus now.
International brokerage house Nomura, in its latest report, has shared it outlook towards on sector ahead of earnings and listed key stocks to watch. They believe a few select companies across large-cap, midcap, and small-cap segments could still stand out.
Let’s take a look at their investment rationale –
Nomura top IT sector picks
The brokerage house Nomura in its latest report has highlighted its preferred bets across the tech segment.
According to the brokerage report, Infosys and Cognizant are its top picks among large-cap stocks, Coforge is preferred in the midcap segment, and eClerx stands out in the small-cap space.
In addition, the brokerage has taken a more positive stance on select stocks.
It stated, “We upgrade TCS, LTI Mindtree, Mphasis and Birlasoft to Buy (from Neutral); and L&T Tech Service to Neutral (from Reduce).”
Q4FY26 results: Nomura predicts uneven growth
The brokerage expects the upcoming quarter to deliver mixed results across the sector.
It noted, “We expect Q4FY26 results to be a mixed bag for the India IT services sector with limited negative impact from the ongoing Middle East conflict.”
However, growth expectations remain modest, especially for large-cap players. Companies such as Tata Consultancy Services, Infosys, and HCL Technologies are likely to report low single-digit or even flat revenue growth on a quarter-on-quarter basis in constant currency terms.
On the flip side, midcap companies are expected to perform relatively better.
Firms such as Coforge and Persistent Systems could see stronger growth, as per Nomura’s report.
Nomura on IT sector: Currency tailwinds and margin dynamics
A key area of focus this quarter is the margin for the tech companies.
The brokerage highlighted, “We believe continued depreciation of the rupee vs the dollar will likely aid in some margin improvement for the sector.”
Since a significant portion of IT companies revenues comes from overseas markets, a weaker Indian rupee (INR) against the US dollar (USD) typically boosts earnings.
However, this benefit may not fully flow to the bottom line.
Nomura on tech sector: FY27 outlook
While Q4 numbers are important, investor focus will quickly shift to guidance for FY27.
Here, the brokerage expects companies to remain cautious.
It noted, “The ongoing conflict in the Middle East and high energy prices are likely to create uncertainty over the end clients’ demand.”
For Infosys, the brokerage expects a conservative outlook. It said, “For Infosys, we expect organic revenue growth guidance of 1-4% yoy in constant currency for FY27F with an EBIT margin band of 20-22%.”
Similarly, for HCL Technologies, revenue growth is expected to be in the range of 2–5% in constant currency terms, with margins staying within a defined band.
BFSI demand remains a key support
As per the brokerage house report, one segment continues to provide stability is the Banking, Financial Services, and Insurance (BFSI) vertical.
Demand from BFSI clients remains largely strong, according to the brokerage
AI: From experimentation to execution
Another key factor to watch in the IT sector is the gradual shift towards AI.
The brokerage noted, “We think clients are gradually moving from proof-of-concept projects to standalone implementations of AI.”
Over the next 12 to 18 months, this transition could unlock larger revenue opportunities for IT service providers, especially in areas such as cloud computing, automation, and data management.
Valuations reset amid uncertainty – Nomura explains why
The brokerage has adjusted its valuation assumptions for the tech sector stocks.
It stated, “We lower target multiples of the stocks in our coverage universe by around 15-20% given the macro uncertainty which will likely weigh on near-term demand.”
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.