The March quarter (Q4FY26) results of the information technology (IT) sector would be uneventful, to say the least. Tata Consultancy Services (TCS) will kick-start with earnings on 9 April.
Demand remains constrained by prevailing client caution on discretionary technology spending. There are uncertainties around artificial intelligence (AI) adoption, changing pricing scenario, and potential deflationary impact on IT budgets.
“Our recent interactions suggest that overall client budgets have not increased materially and discretionary spending remains at bay,” said a Jefferies India report on 26 March. While generative AI represents a structural concern, a prolonged West Asia war would begin weighing on demand assumptions soon. The Street’s struggle with the terminal growth rate assumption continues, thus keeping FY27 revenue growth visibility clouded.
Sequential constant currency revenue growth in Q4FY26, would be muted, adversely impacting FY26 exit rate. Jefferies expects aggregate quarter-on-quarter constant currency revenue growth for its coverage to be flat, with LTIMindtree and TCS among large IT firms and Inventurus Knowledge Solutions and Mphasis among mid-sized IT firms growing faster. For Infosys and HCL Technologies, vertical-specific seasonality can weigh on performance. Tier-II and small-cap companies would continue to beat tier-I peers on revenue growth.
Q4 deal wins would be steady, broadly in line with recent quarters’ performance. The deal pipeline is supported by cost optimization and vendor consolidation programs, which continue to be a priority for clients. That said, some IT companies have indicated a delay in the ramp-up of previously signed large deals; there are also early signs of slower deal closures, especially in shorter-duration projects, said Emkay Global Financial Services. Delay in deal closures means slower revenue conversion.
Among verticals, banking financial services and insurance (BFSI) continues to show positive momentum. While there is some recovery in communication, manufacturing (especially automobile) remains weak. Growth trends in hi-tech, retail, and healthcare, are expected to be mixed. The West Asia war is directly or indirectly impacting industries related to travel, transport, logistics and energy. Tech Mahindra and LTIMindtree have small exposure to this region and could face some impact due to delay in revenue billing.
A silver lining, however, is the recent sharp depreciation in the Indian rupee against the US dollar. Kotak Institutional Equities expects 40-320 basis points year-on-year increase in Ebit (earnings before interest and tax) margin among top six IT companies. Sequentially, it expects stable to increasing margins. IT companies opt for hedging to mitigate currency fluctuation risks.
Kotak noted that large companies have marginal hedging and will result in immediate translation of rupee depreciation into earnings. However, LTIMindtree, L&T Technology Services, Coforge, Persistent Systems and Hexaware Technologies have hedges varying from 12 months to three years and will report hedge losses, added the Kotak report. Margin performance will also be influenced by wage hikes, higher visa costs and business-related seasonality.
The Indian IT sector has seen a sharp pick-up in M&A activity in FY26. Deal-making has been largely targeted and focused on adding specific capabilities in specific domains. As organic revenue growth avenues are muted, companies are pursuing inorganic growth by filling portfolio gaps through M&As.
Still, investor mood is pessimistic. The Nifty IT index has declined 20% so far in 2026, emerging as the second worst performing sectoral indices on the NSE after Nifty Realty.
Nifty IT index is trading at a one-year forward price-to-earnings of 17.8x, around 16% lower than 10-year historical average of 21.2x, HDFC Securities said on 2 April. Looming fears of de-rating don't make lower valuations compelling.