Indian IT services companies are poised to deliver a subdued performance in the first quarter of FY26, according to brokerage firm Motilal Oswal. While large-cap IT Q1 earnings are expected to remain muted, mid-cap IT revenue growth could offer selective resilience amid improving deal momentum and seasonal tailwinds.
Large-Cap IT Revenue Growth Estimated Between Negative 2.5 to Positive 1.5 Per Cent
Motilal Oswal projects quarter-on-quarter constant currency (QoQ CC) revenue growth for large-cap IT firms to fall within a narrow band of negative 2.5 to positive 1.5 per cent. Persistent macroeconomic headwinds, slower client decision-making, and muted discretionary spending continue to weigh on top-tier firms.
TCS is expected to report a 0.5 per cent decline in QoQ CC revenue. HCL Technologies may see a larger dip of 1.2 per cent. Wipro and Tech Mahindra are forecast to log declines of 2.5 per cent and 1.0 per cent, respectively.
On the upside, Infosys is expected to deliver 1.5 per cent sequential growth, aided by large deal ramp-ups and a 20-basis point contribution from its recent acquisition.
Mid-Cap IT Revenue Growth Forecast Up to 7.0 Per Cent in Q1FY26
Mid-cap IT companies’ Q1 earnings are projected to show a broader spectrum of performance. Motilal Oswal sees QoQ CC revenue growth ranging from negative 2.0 to positive 7.0 per cent. Mid-tier players appear better positioned to convert pipeline deals into revenues and respond to demand more nimbly.
Coforge remains the brokerage’s top mid-cap pick, backed by strong deal execution. LTIMindtree is expected to post 1.5 per cent growth, supported by deal ramp-ups and a seasonally strong quarter.
Mphasis may see a rating upgrade if its total contract value (TCV) outlook improves materially. Persistent Systems continues to deliver best-in-class execution, though Motilal Oswal believes there is limited room for further re-rating due to high valuations.
IT Deal Signings Outlook for Q2FY26 and Beyond Holds the Key
The IT deal signings outlook for Q2FY26 and beyond will be a key focus for investors and analysts. While near-term caution persists, Motilal Oswal notes that a potential US Federal Reserve rate cut, combined with a historically strong first half of the fiscal year, could offer a positive setup.
Improving deal win rates, particularly among mid-cap firms, may pave the way for a more constructive second-half outlook, especially if global macro conditions stabilize.
Top IT Stock Picks: HCL Tech, Tech Mahindra, Coforge Remain in Favour
Despite a soft Q1 earnings forecast, Motilal Oswal remains optimistic about select names:
1) Top large-cap IT stock picks: HCL Technologies and Tech Mahindra. Infosys could become more attractive if guidance improves and deal activity accelerates.
2) Top mid-cap IT stock picks: Coforge remains the preferred name, while LTIMindtree is also well-positioned in an improving environment.
3) Though valuations across the sector remain elevated, the brokerage sees room for valuation expansion if companies deliver positive earnings surprises or stronger forward-looking guidance.
