Infosys, TCS, Coforge, Hexaware, KPIT, Wipro, Tata Tech, Mphasis: Q2 preview, stock picks

Motilal Oswal Financial Services (MOFSL) expects the September quarter (Q2FY26) to be muted for the Indian IT services sector, with little improvement compared with the preceding three months. The brokerage believes persistent macroeconomic and tariff-related uncertainties are making clients hesitant to commit fresh budgets for large initiatives.

For the quarter, MOFSL projects constant currency revenue growth of 0.3 to 2.4 per cent for large-cap companies, while mid-tier firms are likely to outperform once again with growth ranging from a decline of 0.5 per cent to an expansion of up to 6 per cent. On a year-on-year basis, MOFSL forecasts aggregate revenues of its coverage universe to rise 6.0 per cent, with EBIT and profit after tax expected to grow 5.2 per cent and 5.5 per cent, respectively, in rupee terms.

Within this backdrop, MOFSL continues to prefer a bottom-up approach in stock selection and has identified Tech Mahindra and HCL Tech among large-caps and Coforge and Hexaware among mid-tier companies as its top picks. The brokerage favours Tech Mahindra on early signs of transformation under new leadership and improving execution in BFSI, while HCL Tech is seen as an all-weather portfolio play. In the mid-cap space, Coforge’s ability to win large cost-saving deals such as the Sabre contract, and Hexaware’s margin trajectory coupled with consolidation-led gains in the Financials vertical, make them the preferred names.

MOFSL does not expect a significant acceleration in FY26 compared with FY25, and sees FY27 growth hinging on the pace of deal wins over the next two to three quarters. The brokerage believes that a meaningful macro improvement and sustained earnings upgrades are unlikely before the next technology cycle, which it expects to materialise only after 15 to 18 months. Unlike earlier transitions, when digital or cloud spending offset legacy drag, the current cycle lacks a clear budgetary trigger.

Across verticals, BFSI is expected to remain resilient through FY26, while auto manufacturers continue to adjust to tariff risks though spending remains elusive. Retail is grappling with margin pressures and H1B visa constraints, and healthcare is weighed down by U.S. policy uncertainty. Margins across the sector are expected to remain range-bound, with supply-side pressures staying muted. However, meaningful gains appear limited due to pricing challenges, shifts in delivery models, cautious client behaviour, and the costs of adapting to the generative AI transition.

Engineering research and development is expected to remain under pressure in the second quarter of FY26 due to moderated capex by Western OEMs and slower ramp-up in electric vehicle and software-defined vehicle projects. A recovery is expected in the second half of the year as delayed projects resume and demand from China and India partly offsets weakness in Europe and the U.S. MOFSL believes that a major re-rating of the sector will require the emergence of a new technology cycle and material earnings upgrades.

At present, the top four IT services companies trade at their average 10-year price-to-earnings multiple and at a 16 per cent discount to their average five-year valuation, leaving room for expansion if earnings and outlook surprise on the upside.