IT Q3 preview: Cautious optimism amid seasonality; TCS, HCL Tech, TechM, Infosys top picks

The Indian IT sector is entering Q3FY26 result season amid cautious optimism, with expectations of a gradual recovery led by steady deal momentum, AI-led digital transformation, and resilient demand in select verticals such as BFSI and Healthcare. IT players will begin the result season from January 12 with the majors like Tata Consultancy Services Ltd (TCS) and HCL Technologies Ltd.

While seasonal furloughs, muted discretionary spending, and macroeconomic uncertainties are likely to keep near-term growth subdued, improving utilisation, cost efficiencies, and stable margins provide support. Mid-cap companies are seen relatively better positioned on growth, as investors closely track demand signals from CY26 client budgeting for clearer visibility into FY27.

Motilal Oswal anticipates the IT sector will navigate a subdued 3QFY26. It expects seasonal furloughs to weigh on growth in 3QFY26."We think markets are likely to look through this seasonality and instead focus on signals around the demand environment from client budgeting for CY26. Clients remain cautious on committing incremental spending to large programs," said Motilal Oswal. It sees demand to stay steady, at best marginally incremental as planning cycles reset and budgets firm up.

Motilal Oswal sees Q3 results are likely to mirror this set-up, with QoQ cc growth expected in the range of 0.3% to 2.3% for large-caps. Mid-caps are expected to outperform once again with a growth range of -2.5%-3.5%. AI services demand could begin to improve from mid-2026 as hardware-led AI capex intensity moderates and spending gradually shifts toward software, platforms, and services., it said.

"We believe CY26 should represent the bottoming of the growth cycle, setting the stage for a more meaningful acceleration in 2HFY27 and FY28 as AI services move into scaled deployment. We prefer Infosys and Tech Mahindra Ltd (TechM) among large caps, while Coforge and Hexaware Technologies Ltd remain our top picks among mid-caps," it adds.

Emkay Global expects seasonal factors to drive moderate sequential revenue growth for the IT sector in Q3FY26. Growth momentum may improve year-on-year, supported by continued strength in BFSI, stable demand, and steady deal momentum. Discretionary spending remains restrained as clients stay cautious amid macro uncertainties and ongoing AI-led tech shifts.

Emkay Global noted that tier-1 players HCL Tech, Wipro and LTIMindTree are likely to lead sequential revenue growth, while other tier-1 companies may see flattish growth. Among tier-2 firms, Persistent Systems, Coforge Ltd, and Mphasis Ltd are expected to outperform, while Hexaware Tech and Sonata Software may see muted revenue growth.

Emkay highlighted that tech budgets should be finalized by early CY26, which may offer more clarity on growth acceleration. It estimates for CY26/FY27 assume a gradual pickup in growth, but risks remain if macro uncertainties persist.

JM Financial anticipates another subdued quarter for the Indian IT sector, citing persistent effects from furloughs and minimal discretionary spending. Top six IT companies are expected to report revenue growth ranging from -2.6% to 5% YoY, reflecting the seasonally soft environment of Q3.

JM Financial highlights that the BFSI segment is holding up comparatively well, while manufacturing, particularly automotive, continues to face challenges. JM Financial expects another weak quarter for Tata Tech and KPIT, with management commentary for the next quarter closely monitored. The BPO segment is forecast to remain the most stable, with a strong outlook for Q4.

JM Financial has a 'sell' rating on LTIMindTree with a target price (TP) of Rs 5,000. It has a given an 'add' rating on HCL Tech (TP: Rs 1,370), TechM (TP: Rs 1,710), IKS (TP: Rs 1,800), Firstsource Solutions (TP: Rs 380).

JM has a 'buy' rating on TCS (TP: Rs 3,770), Infosys (TP: Rs 1,890), Wipro (TP: Rs 310), Mphasis (TP: Rs 3,290), Persistent (TP: Rs 7,280), Coforge (TP: Rs 2,120), Hexaware (TP: Rs 880), Tata Technologies (TP: Rs 790), KPIT Tech (TP: Rs 1,370), Sagility (TP: Rs 69), MapmyIndia (TP: Rs 2,330) and Black Box (TP: Rs 640).

Elara Capital anticipates that most IT Services companies will see their Q3FY26 revenue affected by ongoing furloughs and lower utilisation, noting that these factors are likely to remain at similar levels as before. Persistent deal momentum is expected, with clients prioritising investments in next-generation technologies including cloud transformation, data analytics, and AI.

Elara highlights that budgets for CY26 may bring clarity for FY27 growth, but do not expect material increases. Elara Capital flags a potential uptick in attrition due to talent movement towards GCCs, and pressure on margins from both furloughs and wage hikes. Infosys and HCL Technologies are expected to retain their FY26 revenue growth guidance at 2-3% and 3-5% respectively.

Mid-cap IT firms are forecasted to outpace large-caps this quarter, with Coforge and Persistent Systems projected to deliver over 3% sequential USD revenue growth. LTI MindTree and Mphasis could see 1-2% growth, while most large-caps may report between -0.5% and +0.5%, said Elara.

The Indian IT sector is set for a measured recovery in Q3FY26, according to DR Choksey Finserv, driven by accelerating AI-led transformations, cloud modernisation, and vendor consolidation, even as global spending remains cautious. Revenue growth is predicted to strengthen in H2FY26, backed by strong deal pipelines and ramp-ups in major programmes, though macroeconomic uncertainties and restrained discretionary budgets could moderate the pace.

Operational efficiencies, improved utilisation, and optimised costs are expected to keep sector margins resilient, with focus on high-growth areas such as BFSI, Healthcare, and Technology. Large-cap IT firms continue to demonstrate consistent execution and broad-based revenue growth through conversions of large deals and programme ramp-ups in North America and Europe, said DR Choksey.

DR Choksey's top picks from IT Sector include TCS, Infosys Ltd and Tech Mahindra for their strong large-deal pipelines, rising AI-led/digital transformation spending, and improving client activity across key verticals, which together support steady revenue visibility, it said.

In the IT pack, Elara has a 'buy' rating on Mphasis (TP: Rs 3,340) only, while it has given TCS (TP: Rs 3,600), Infosys (TP: Rs 1,700), LTIMindTree (TP: Rs 6,320), and TechM (TP: Rs 1,640) an 'accumulate' rating. HCL Tech (TP: Rs 1,445) and Coforge (TP: Rs 5,250) have a 'reduce' tag, while Wipro (TP: Rs 210), Tata Elxsi (TP: Rs 4,390), KPIT Tech (TP: Rs 995) and Tata Tech (TP: Rs 515) have a 'sell' rating.

Emkay Global has upgraded Firstsource Solutions to add on the back valuation comfort. "Our pecking order is Infosys, LTIMindTree, TCS, HCL Tech, Wipro, and TechM in large caps. Among midsize IT Services coverage stocks, we prefer Hexaware Tech, Mphasis, Coforge, Persistent Systems and Firstsource Solutions," it said.