Indian IT Sector: Q1 FY26 Earnings Preview and Strategic Outlook

As the Indian IT services industry enters the Q1 FY26 earnings season, expectations remain tempered amid global macroeconomic uncertainties, slowing discretionary IT spending, and cautious enterprise decision-making. The quarterly performance of Tata Consultancy Services (TCS) has already provided a preview of the sector’s challenges, setting the tone for peers such as Infosys, Wipro, HCL Technologies, and several mid-cap IT firms.

This blog outlines the key developments, expectations from upcoming results, and the strategic implications for investors tracking India’s technology sector.

TCS Q1 FY26: A Soft Start to the Quarter

Tata Consultancy Services, India’s largest IT exporter, released its Q1 FY26 results on July 10. The company reported muted growth, primarily impacted by delayed client spending and slower ramp-ups in key markets.

Performance Highlights:

• Revenue: ?62,613 crore (up 5.4% YoY, 0.4% QoQ)
• Net Profit: ?12,040 crore (up 8.7% YoY)
• Operating Margin: 24.7% (flat QoQ)
• Total Contract Value (TCV): $9.4 billion (vs. $12.2 billion in Q4 FY25)

TCS management highlighted weakness in discretionary spending, particularly in the BFSI and European geographies. Furthermore, the slowdown in deal ramp-ups and macroeconomic pressures in the U.S. and EU have negatively impacted near-term revenue visibility.

The muted outlook from TCS has had a ripple effect on the sector, leading to a short-term correction in the Nifty IT index and a dip in ADRs of Infosys and Wipro.

Sectoral Trends and Macro Factors

The Indian IT sector is currently facing a confluence of global headwinds:

• Macroeconomic Slowdown: Continued geopolitical tensions, inflationary pressures, and the U.S.-China trade war have led to subdued IT budgets.
• Delay in Client Decisions: Enterprise clients are deferring large IT transformation deals, especially in BFSI and retail.
• Currency Tailwinds: Depreciation in the Indian rupee is expected to aid reported revenue growth by 70–300 basis points QoQ.
• Talent Rationalization: Attrition has moderated, and most companies are focusing on improving utilization and cost control, which could support margins.

Despite these challenges, long-term secular trends such as cloud migration, GenAI adoption, and vendor consolidation remain intact.

What to Expect from Tier-I IT Companies

Infosys

Earnings Date: July 23

Infosys is expected to outperform peers in QoQ revenue growth, with estimates suggesting 1.4%–1.7% CC growth. Margin expansion is likely to be modest, supported by operational efficiencies and improved utilization.

Key Expectations:

• Revenue growth at the upper end of industry average
• Stable EBIT margin in the range of 20–21%
• Potential upgrade in FY26 revenue guidance (current: 1–3%)

Analysts and brokerages remain constructive on Infosys, particularly if it delivers a strong beat and upward guidance revision.

Wipro

Earnings Date: July 17

Wipro is expected to post flat to marginally negative revenue growth in CC terms. The company has struggled with execution and client mining over the past few quarters. Despite a rich dividend yield (~3.4%), investor sentiment remains subdued.

Key Watchpoints:

• Revenue change: -1% to +1% QoQ
• EBIT margin pressure likely to persist
• Deal pipeline and commentary on demand outlook will be crucial

Unless there is a positive surprise in terms of large deal wins or revised guidance, Wipro is expected to underperform in the near term.

HCL Technologies

Earnings Date: July 14

HCLTech may post a mild revenue decline sequentially (~-0.9% CC), primarily due to seasonality and client delays. However, the company’s FY26 guidance of 3–5% growth remains unchanged. HCLTech’s focus on AI-led automation and its strong presence in ER&D give it a structural edge.

Highlights:

• Revenue decline expected, but within guidance
• EBIT margin may soften by ~50 bps due to wage revisions
• Positive long-term outlook driven by digital and AI segments

Any reaffirmation of guidance and commentary on large deal wins could help the stock recover quickly.

Mid-Cap IT: Diverging Performances

Tata Elxsi (Already Reported):

• Revenue: ?926.5 crore (down 3.7% QoQ)
• Net Profit: ?173.3 crore (down 3.1% YoY)
• EBIT Margin: Down to 26.4% (from 28.6%)

The company cited project delays in the automotive vertical and continued weakness in the broadcast segment. Given its expensive valuation (~60x PE), the results disappointed, leading to a 4% correction in the stock.

Other Mid-Caps to Watch:

• LTIMindtree: Earnings on July 17; BFSI exposure could weigh on results
• L&T Technology Services: Better visibility in industrial engineering and automation segments
• Coforge and KPIT Technologies: Could show resilience if travel and auto-related verticals perform well

Investment Strategy: Navigating the Earnings Season

Investors should closely monitor the management commentary during earnings calls for insights on client budgets, demand pipelines, and guidance revisions. In the short term, volatility may persist; however, long-term investors can use corrections to build positions in quality names with strong balance sheets and differentiated capabilities.

Conclusion

The Q1 FY26 earnings season is likely to be a subdued one for the Indian IT sector, with most companies facing headwinds from weak discretionary spending, delayed decision-making, and global uncertainty. However, long-term drivers such as AI integration, cost optimization, and digital transformation remain intact.

While TCS has already set a cautious tone, the spotlight now shifts to Infosys, HCLTech, and select mid-caps to assess the sector’s resilience. Investors are advised to remain selective, avoid overvalued stocks, and focus on companies demonstrating execution consistency, margin stability, and deal momentum.

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