IT Sector Sees Muted Earnings Growth, Stable Margins in Q4: TCS, Infosys, and Coforge Among Key Stock Picks

Tata Consultancy Services Set to Kick-Start Q4 Earnings Season for IT Companies

Tata Consultancy Services (TCS), India's largest IT service exporter, will declare its Q4 results on Thursday, 9 April. This marks the beginning of the fourth quarter earnings season for IT companies. The fiscal fourth quarter ending March benefits from the absence of furloughs, particularly in BFSI and retail, although this is partly offset by a lower number of working days.

The Indian IT sector's Q4FY26 results are expected to remain subdued, reflecting the current challenging environment marked by multiple uncertainties, including the US-Iran war, disruptions driven by generative AI, and ongoing concerns around US tariffs. However, a sharp depreciation in the Indian rupee against the US dollar during the quarter is likely to support IT sector earnings, with margins largely remaining intact.

Tier-2 IT Companies to Outperform Tier-1 Counterparts

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Tier-2 IT companies are expected to continue to outperform their Tier-1 counterparts. Kotak Institutional Equities expects TCS to lead revenue growth among Tier-1 companies, while Persistent Systems will lead the charge among mid-tier companies. The following table summarizes the estimated revenue growth for Tier-1 IT companies in Q4FY26:

In contrast, Tier-2 IT companies are expected to continue outperforming their larger peers. Persistent Systems is projected to lead with a 4.0% QoQ CC growth, followed by Mphasis (+2.3%), Coforge (+2.0%), and LTIMindtree (+1.5%). However, Hexaware Technologies may see a marginal sequential decline of 0.6%, Nuvama added.

Decent Deal Flows, Stable Margins

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Deal flows of IT companies are likely to stay decent despite a volatile demand environment with cost-takeout deals making up for a bulk of incremental wins. Margins are estimated to be volatile across a few companies, affected by wage hikes and restructuring costs, partly offset by operating leverage and currency tailwinds. Kotak Institutional Equities expects 40-320 bps YoY increase in EBIT margin among top-6 IT companies, helped by 6.5% rupee depreciation against US dollar.

FY27 Guidance

Two factors are likely to dominate the outlook of IT companies. First, elevated geopolitical risk from the US-Iran war adds uncertainty to global macro conditions and enterprise spending visibility. Second, GenAI-driven productivity programs are increasingly deflationary in nature. Kotak Equities expects Infosys to guide to 3-5% revenue growth for FY2027, and HCL Technologies to guide to 3-5% overall revenue growth, supported by its services mix and large deal ramp-ups. It expects service revenue growth in 4-6% band. HCL Technologies might raise its EBIT margin guidance band by around 50 bps to 17.5% - 18.5% from 17% - 18% in FY2026, according to the brokerage firm.

IT Sector Outlook

The IT sector has sharply underperformed the markets in FY26 owing to a negative narrative built by Gen AI platform companies and tariff-related uncertainty. Nuvama Equities continues to believe the IT Services model is here to stay and the Gen AI disruption would only lead to bigger opportunities for them. Post the recent sharp correction, the brokerage firm finds the valuation of all IT stocks highly attractive. Reverse DCF also indicates an extremely low terminal growth assumption. Nuvama remains positive on the IT sector and has a 'Buy' rating on all the Top-ten IT services companies, with a preference for Coforge, LTIMindtree, Tech Mahindra, Mphasis, Persistent Systems, Infosys, and TCS.