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We expect IT Services companies to deliver a muted albeit steady sequential growth in Q4, on the back of lesser working days and a demand environment that remains constrained by client caution and evolving tech priorities. Among verticals, BFSI is likely to maintain positive momentum in Q4, whereas recovery in Healthcare, Manufacturing, Hitech, and Retail remains uneven, with elevated macro uncertainties clouding the pace of rebound. Tier 1 players LTM, TCS, WPRO, and TECHM would lead sequential revenue growth in our view, while INFO and HCLT would report decline due to the usual seasonality factor. Within the tier-2 pack, while FSOL, PSYS, MPHL, and COFORGE would lead on revenue growth, HEXT, LTTS, and SSOF are likely to post muted growth. EBITM for our IT universe is likely to be a mixed bag, contingent on wage-hike cycles, restructuring impact, large-deal rampup, business-related seasonality, and M&As, as well as being aided by currency movement. The recent sharp depreciation in the rupee offers a cushion to consensus’ earnings estimates for CY26/FY27 and helps offset some pressures emanating from elevated macro and geopolitical volatility, uncertainties around AI evolution and adoption, changing pricing constructs, and potential deflationary impact on IT budgets. We expect heightened focus on revenue growth guidance, given widespread pessimism and the resultant increased volatility during the earnings season. The NIFTY IT Index has underperformed the broader market by ~10%/5% over the past 3M/6M, due to aforementioned factors. However, the underperformance has partially reversed over the past 1M, with the index outperforming the broader market by ~6% on sharp rupee depreciation, which has improved earnings defensibility. We upgrade COFORGE and ECLX to BUY from Add.

Muted yet resilient revenue growth in Q4; YoY growth to improve further

IT Services companies are likely to deliver muted albeit resilient revenue growth in Q4 due to lesser working days, macro softness amid the Middle East (ME) conflict, cautious discretionary spending, and tighter RoI scrutiny. With steady demand trends in the last few quarters, revenue growth on YoY basis is expected to improve in Q4, providing a firm foundation for the FY27 growth trajectory. Large caps, except HCLT and INFO (due to the usual seasonality), are expected to report flat-to-modest growth. Reported USD revenue may still see modest QoQ growth, supported by favorable cross-currency movement. Tier - 1 players are expected to post CC revenue growth in the  - 1.6% to 2.0% range, while reported USD revenue growth would be flat-to-40bps, given cross-currency tailwinds. Tier - 2 companies may see CC revenue growth range of -1.5% to 4.6%, with the impact ranging from -20bps to 80bps on reported USD revenue. Among verticals, BFSI continues to exhibit positive momentum, Communication shows some recovery, while Manufacturing (especially Auto) remains soft. Growth trends across other verticals, including Hi - tech, Retail, and Healthcare, remain mixed. ER&D players continue to face pressure due to weakness in the Auto sector as well as the current ME crisis. For FY27E, we expect CC revenue growth guidance by INFO at 2–5% with EBITM of 20 - 22% and by HCLT at 3 - 6% with EBITM of 17.5 - 18.5%. WPRO’s Q1FY27 CC revenue growth guidance range is expected at -1.5% to +0.5%.

EBITM to reflect the mixed trends; buoyed by rupee depreciation

Margin performance of our IT Services companies’ universe is expected to be a mixed bag in Q4, influenced by factors such as wage hike (WPRO, LTM), higher visa costs (INFO), restructuring (TCS, HCLT), weak rupee, business - related seasonality, and M&As. Tier-1 players except HCLT and LTIM are expected to log margin expansion sequentially. Mid - cap companies may see a wider margin fluctuation, ranging from  - 20bps to +130bps QoQ, except HEXT and BSOFT, which would witness an increase of 570bps and decline of 230bps due to the absence of one - offs. Net hiring is likely to be muted.

Key monitorables

i) FY27 revenue/margin guidance and growth trajectory being front - ended or back-ended. ii) Management commentary on the CY26 IT budget. iii) Update on early conversations with clients on tech spending amid the ME conflict. iv) Deal intake and pipeline. v) Pace of decisionmaking and project deferment/cancellation. vi) Demand trends in key verticals such as BFSI, Retail, Manufacturing, HLS, Hi - Tech, and Communications. vii) Evolving pricing and commercial constructs. viii) Change in talent strategy and hiring plan owing to shift in skills requirement and productivity gains from AI. ix) Enterprise ability and willingness to adopt and deploy AItailored solutions across functions. x) Management perspective on the human+agent led delivery.

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