Tata Elxsi, KPIT Tech, LTTS, Cyient: Check Q4 previews, targets & outlook for IT stocks

Choice Institutional Equities is expecting Indian pure play engineering research and development (ER&D) companies to report a subdued quarter in Q4FY26 as demand conditions stabilise but lack a broad-based recovery. Continued moderation in capital expenditure and programme reprioritisation among global original equipment manufacturers (OEMs) are restraining growth.

The automotive sector continues to pose challenges, particularly in passenger vehicles. OEMs are extending decision-making cycles and recalibrating electrification plans amid cost pressures and previous write-downs. While the US market shows ongoing weakness, Europe is displaying early signs of stabilisation, supported by offshoring and multi-year software-defined vehicle (SDV) programmes, though progress remains gradual, Choice notes.

Non-automotive segments such as aerospace maintenance, repair and overhaul (MRO), sustainability engineering, Industry 4.0, and energy sectors are expected to show relative resilience. These areas partly offset the automotive downturn, suggesting the sector is approaching a trough with recovery delayed rather than cancelled, the report said.

Quarter-on-quarter (QoQ) growth among ER&D players is projected to be modest, ranging from -0.8 per cent to 1.6 per cent in dollar terms. Choice Institutional Equities forecasts KPIT Technologies to grow by 1.6 per cent, Tata Elxsi Ltd by 0.8 per cent, and Cyient Ltd digital engineering and technologies division by 0.1 per cent. L&T Technology Services Ltd may experience a 1.2 per cent QoQ fall.

Despite a healthy deal pipeline, delays in conversions, especially in automotive, are limiting revenue momentum and pushing meaningful recovery to FY27. Margins are expected to remain stable or improve slightly quarter-on-quarter, supported by Indian rupee depreciation, higher utilisation rates, and ongoing cost discipline, said Choice.

However, operating leverage is limited and selective wage increases continue to affect margins. Tata Elxsi is likely to face near-term margin pressure. The impact on margins will vary depending on companies' foreign exchange hedging strategies, with less hedged firms benefiting sooner from currency movements, Choice noted.

Recovery depends on improved client budgets for calendar year 2026, better deal ramp-ups, and macroeconomic stabilisation. Near-term visibility remains uncertain due to geopolitical risks such as US-Iran tensions, which could impact discretionary spending if escalated. Generative AI may exert deflationary pricing pressure on existing contracts without immediate revenue gains.

After significant corrections in ER&D stock valuations, current prices better reflect demand uncertainties and execution delays. While near-term growth prospects are modest, the deal pipeline remains intact, supported by structural growth drivers including SDV, electrification, AI-led engineering, and industrial automation, the report highlights.

Choice Institutional Equities maintains a selective constructive stance, favouring companies with strong execution visibility, European market exposure, and margin resilience. KPIT Technologies is preferred due to its superior positioning in SDV-led transformation and a relatively clearer growth outlook, the report adds.

Choice has a 'buy' rating on Cyient, KPIT Technologies Ltd and L&T Technologies Services with target price of Rs 1,250, Rs 1,150 and Rs 4,350, respectively. However, is has a 'reduce' rating on Tata Elxsi with a target price of Rs 4,550.