TCS shares fared worse than Infosys YTD; will Q1 results trigger a recovery?

Tata Consultancy Services (TCS) has delivered a negative return of 18 per cent in 2025 so far, which is worse than peer Infosys' 14.32 per cent decline during the same period. The largest IT firm has grown better than Infosys in FY25. But HSBC expects the growth to converge for both companies in FY26. TCS would announce its Q1 results later in the day.

TCS and Infosys have reported strong deal bookings, but actual revenue conversion has been sluggish, impacting overall growth, Nirmal Bang Institutional Equities said in its Q1 preview note. It said muted demand environment continues to weigh on Tier-1 IT companies with revenue growth expected to be largely flattish in QoQ CC terms. Client caution around discretionary spending remains an overhang, with BFSI, Retail, and Hi-Tech verticals still witnessing weak budgets, it said.

The brokerage has 'Hold' rating on both TCS and Infosys, with targets of Rs 3,829 and Rs 1,686, respectively.

Systematix Institutional Equities said the dollar revenue growth of large-cap IT companies may range from minus 1.4-2.5 per cent for 1QFY26. "Infosys is expected to lead on acquisition and deal ramp ups, followed by Tata Consultancy Services (TCS), HCL Technologies, and Tech Mahindra, supported by favorable currency tailwinds," Systematix said.

This brokerage sees TCS' Q1 profit to rise 2.2 per cent YoY against an anticipated 7.4 per cent growth in Infosys' Q1 profit. Q1 Ebit margin for TCS is seen at 24 per cent against 20.9 per cent for Infosys.

That said, the brokerage has a 'Hold' on Infosys with a target of Rs 1,600, and 'Buy' on TCS with a target of Rs 4,017.

Sharekhan expects Infosys to lead revenue growth among Tier-1 companies, with revenue growth of 1.7 per cent QoQ in CC terms aided by seasonality and weak base of Q4FY25.

"TCS, TechM, HCL Tech and Wipro are expected to decline 0.4 per cent/0.6 per cent/0.7 per cent and 2.5 per cent QoQ respectively in CC terms while LTIM is expected to deliver modest revenue growth of 1% QoQ in CC terms," Sharekhan said.

In the case of EBIT margin, Sharekhan expects Infosys and TCS to report 25 bps  and 10 bps QoQ improvement in margin. This brokerage has 'Buy' on TCS with a target of Rs 4,050.

Ahead of Q1 results, Nomura India said it has Infosys as top picks in the largecap space. ICICI Securities prefers TCS among IT names due to valuation comfort.

HSBC prefers Infosys and said the long-term stock return trajectory gradient will not only be lower than in the past, but IT stocks will also be a lot more cyclical around this mean path.