IT Q3 preview: AI-led demand in focus; Infy, TCS, Coforge, HCL Tech, TechM among top picks

IT sector Q3 preview: As we are heading towards Q3 results, traders are shifting their focus towards IT pack, which officially kick-off the result season. IT major Tata Consultancy Services Ltd (TCS) and HCL Technologies Ltd is set to announce its results for the quarter and nine-months ended on December 31, 2025.

Brokerage firms believe that the December 2025 quarter is likely to remain a muted on considering the seasonality but one should look at the management outlook and commentary for the entire year 2026. They believe that the Indian IT sector shall deliver a resilient Q3 show with focus shifting toward demand signals, particularly AI-led segment.

Motilal Oswal expects seasonal furloughs to weigh on IT sector growth in 3QFY26. Markets are likely to look through this seasonality and focus on demand signals from client budgeting for CY26. Amid macro-tariff uncertainty and a new tech cycle, clients remain cautious on incremental spending. Demand is expected to stay steady, at best marginally incremental, until Jan’26 as planning cycles reset and budgets firm up.

Motilal Oswal forecasts 3Q results will reflect this environment, with QoQ cc growth expected at 0.3% to 2.3% for large-caps. Mid-caps are expected to outperform, with growth ranging from -2.5% to 3.5%. Motilal Oswal believes CY26 should mark the bottom of the growth cycle, setting the stage for acceleration in 2HFY27 and FY28 as AI services scale up.

AI services demand could start improving from mid-2026 as hardware-led AI capex moderates and spending shifts toward software, platforms, and services. The Mar-Apr’26 budget reset may provide initial signs, with some AI programmes potentially moving from preparation to early deployment, Motilal noted.

According to Choice Broking, enterprise transformation and modernisation driven by artificial intelligence continue to support topline momentum, even as discretionary spending remains slow to recover. Accenture's recent results, including 6% year-on-year revenue growth and a 76% jump in GenAI bookings, are seen as signalling broader AI-led demand recovery.

Currency movements during the quarter played a key role, with the rupee depreciating 2.2% QoQ against the dollar, improving margins and revenues in rupee terms. However, cross-currency factors are expected to slightly limit growth in dollar terms, as the euro and pound also weakened against the dollar. Choice Broking notes that recent US Federal Reserve rate cuts may further optimise client budgets for IT spending in upcoming quarters.

Choice Broking forecasts, “We believe IT Services companies would exhibit sequential growth of -1.8% to 3%+ in dollar terms in Q3FY26E led by large deal ramp ups and strong AI built pipeline. Margins are also expected to reflect an upward bias barring few companies, which have announced salary hikes effective Q3FY26.”

Most large-cap IT companies are trading near their five-year average valuations, while mid-tier firms remain well below previous peaks, improving risk-reward for investors, it said. "We remain constructive on companies with strong execution track records, healthy deal wins, limited exposure to tariff-sensitive verticals, differentiated AI strategy and attractive valuations."

Infosys Ltd and Tech Mahindra Ltd are preferred among large caps, while Coforge Ltd and Hexaware Technologies Ltd are top picks for mid-caps, According Motilal Oswal. Choice Borking is positive on TCS (Target Price: Rs 3,950), Coforge (Target Price: Rs 2,045) and Happiest Minds Technologies (Target Price: Rs 670), giving them a 'buy' rating.

Choice has 'buy' rating on Datamatics Global (Target Price: Rs 1,130), HCL Technologies (Target Price: Rs 1,720), Infosys (Target Price: Rs 1,810), Tech Mahindra (Target Price: Rs 1,730) and Zensar Technologies (Target Price: Rs 1,000) also. It has an 'add' rating on Wipro (Target Price: Rs 285), Persistent Systems (Target Price: Rs 6,050), Mphasis (Target Price: Rs 2,935) and LTIMindTree (Target Price: Rs 5,800).

Reading the technical charts of Nifty IT index, domestic Brokerage firm Emkay Global Financial Services believes that it may rise to 51,700 in next 18 months, citing that the correction might be over in the index. It believes that one can play this theme by ITBEES or ETFS.

On the other hand, overseas brokerage firm Citi has revised FY26E-28E estimates to reflect changes in exchange rate and operational parameters for the IT sector, trimming targets for select stocks from the space. It has a 'neutral' rating on Hexaware Technologies and Mphasis with target price of Rs 700 and Rs 2,780, respectively.

It has given a 'sell' ratings for L&T Technologies (Target price: Rs 3,700), Coforge (Target price: Rs 1,530), Persistent Systems (Target price: Rs 4,970), LTIMindTree (Target price: Rs 4,900), Tech Mahindra (Target price: Rs 1,290) and Tata Technologies (Target price: Rs 585).