7 out of 11 IT firms missed Q4 top line estimates, still IT index up 9%; what's ahead?  

IT Q4 results review: In it latest note on information technology sector, MOFSL said seven out of 11 IT firms that declared March quarter results so far reported a miss of revenue estimates, although margin performance was relatively decent, with 70 per cent of the companies beating or meeting expectations. 

Despite a mixed set of Q4 results and earnings downgrades in the range of 3–4 per cent, the NSE IT Index has rallied by 9 per cent since Tata Consultancy Services (TCS) initiated the results season—an outcome that has taken many by surprise.

MOFSL attributed this rally to two primary factors. First, the extent of earnings downgrades was milder than anticipated. Second, management commentaries across companies remained largely constructive, particularly with regard to near-term demand stability, especially for the first quarter of FY26.

However, the brokerage cautioned that tariff risks have yet to be fully absorbed. Even if tariff concerns were to dissipate, the sector would still face the fundamental challenge of a sluggish growth recovery.

MOFSL presented three potential scenarios for the sector and emphasised the importance of correct portfolio positioning over mere predictability. It advocated for a bottom-up approach, favouring transformation-led and margin-driven opportunities over top-down discretionary names.

Among Tier-I players, MOFSL expressed a preference for Tech Mahindra (TechM), citing early indicators of organisational transformation under new leadership and improved execution in the banking, financial services, and insurance (BFSI) segment. Margin expectations for TechM have now become more realistic, and the company’s specialised offerings are gaining traction. MOFSL believes that TechM's transformation is relatively insulated from trends in discretionary spending.

The brokerage sees potential for sustained margin expansion at TechM, supported by prospects for a telecom sector recovery and enhanced operational efficiencies.

In addition, MOFSL highlighted HCL Technologies for its resilient, well-diversified portfolio and viewed TCS as offering a favourable risk-reward proposition.

Reflecting on mid-tier firms, MOFSL noted that the previous downcycle demonstrated their ability to excel in cost-conscious environments. It cited Coforge’s recent deal with Sabre as evidence of mid-tier firms' growing scale and maturity in delivering cost-saving solutions. The brokerage expressed confidence in mid-tier companies with strengths in business process outsourcing (BPO), data, robotic process automation (RPA), and generative AI (GenAI) acceleration, identifying Coforge and Persistent Systems as emerging leaders.

Looking ahead, MOFSL noted that most Q4FY25 earnings commentaries imply a base-case scenario featuring a normalised Q1, the United States avoiding a recession, and a de-escalation of trade tensions.

TCS conveyed optimism that trade-related uncertainties would subside after the first quarter, while Infosys projected typical seasonal trends in Q1, suggesting strong quarter-on-quarter growth.

"At present, we believe the market has already priced in this scenario. There is, however, a risk that recent management commentaries may have slightly overestimated the pace at which current uncertainties will ease," MOFSL concluded.