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The IT Services sector is anticipated to report steady growth in Q1FY26, primarily due to weaker discretionary spending, steady deal pipeline, and some uncertainties in macroeconomic conditions such as trump tariffs and trade war. Since the last few quarters, clients of Indian IT Services have been cutting their IT budgets due to economic uncertainty, especially in the US and Europe. Many large enterprises are likely to prioritise cost optimisations, resulting in an increase in cost take-out deals, vendor consolidation, and a reduction in headcount costs. Therefore, BFSI, Hi-tech, and Healthcare Services industries are likely to show some recovery, while Manufacturing and Retail sectors are likely to remain subdued. Moreover, deal wins momentum in such industries is expected to remain strong despite volatility in demand. We believe that steady growth in such verticals will offset some amount of weakness at the broader level in this quarter. Furthermore, we anticipate a healthy growth trajectory to begin in H2FY26, led by ramp-up in deals, better utilisation, and execution of projects. Moreover, demand for emerging technologies such as Generative AI, Machine Learning, Cloud Transformation, and Digital Transformation continues to remain strong.

We expect IT services to report revenue growth in the range of -1% to 2% QoQ in US$ terms. In rupee terms, we expect the sector to deliver QoQ revenue growth of 0.5% to 2%, led by cross-currency tailwinds. Margins are likely to witness some expansions on account of cost optimisation, sluggish recruitment and delay in wage hikes.

Telecom

Telecom players (Bharti Airtel and Reliance Jio) continue to gain market share on the back of higher customer stickiness, improving financial performance, and favourable market conditions. As per TRAI data, Bharti Airtel added a net addition of 2.75 Lc subscribers, and Reliance Jio added 27 Lc, bringing its total subscriber base to 39 Cr and 47 Cr, respectively. We believe that this momentum is likely to continue, led by 5G rollout, tariff hikes, strategic alliances, and robust cash flow. For Q1FY26, we expect Bharti Airtel to report revenue growth of 3.2% QoQ and 28.3% YoY. We are also expecting EBITDA margins to gain 69 bps (remain relatively flat) for the quarter and stand at 57.1%.

Key Monitorables: We would watch out for the management commentary for both IT and Telecom players on 1) Outlook on client spend, especially on the BFSI vertical and Healthcare life sciences, 2) Vertical outlook,3) Rising subcontractor costs, 4) Deal wins, 5) AI deal pipeline 6) tariff hikes, and 7) Subscriber additions

TCS: We expect TCS to report flattish revenue, i.e., 0.3% QoQ, led by revenue decline in the BSNL deal. EBIT margin to remain flattish by 60 bps during the quarter. Key attributes to watch out for are a) Deal TCV/Pipeline, b) outlook on business vertical, c) wage hike, and d) New deal with BSNL.

Infosys: We expect Infosys to report strong revenue growth of 2.6% QoQ, on account of higher working days and growth in the BFSI segment.  We also expect operating margins to fall by 120 bps aided by a wage hike for senior staff and acquisition costs for MRE Consulting and Missing Link. onsite expenses. We also expect the management to increase the company’s revenue growth guidance for FY26E to 1%-3% YoY from 0%-3% YoY. Key monitorables would be a) Deal TCVs and pipeline, b) outlook on BFSI vertical, c) margin levers, and d) Gen AI adoption.

HCL Tech: We expect HCL Tech to report revenue growth of 0.3% QoQ on account of weak service business and operating margin to contract by 44bps. Key factors to watch out for are a) Deal TCV/deal pipeline, b) Discretionary spends, and c) Outlook on ER&D and Service business.

Wipro Ltd: We expect Wipro to report revenue growth of 3% QoQ in rupee terms. Its operating margins are likely to expand on account of cost control measures.  Key monitorables would be a) Deal TCV/pipeline, b) European business, and c) Outlook on new large deals.

Tech Mahindra: We expect the company to report revenue growth of 0.6% on a QoQ basis, led by weakness in the Comviva business and manufacturing and retail business, while its margins are likely to expand marginally due to cost optimisation initiatives. Watch out for a) Deal TCVs and pipeline from the communication vertical, b) Attrition, c) Outlook on growth/margins, and d) Multi-year deals.

LTI Mindtree: We expect LTIMindtree to report the revenue growth of 1.4% QoQ in rupee terms on the back of growth in BFSI and Hi-Tech vertical. Operating margins are likely to improve by 59bps. Key things to watch out for are management commentary on the deal wins, manufacturing verticals, and client engagement.

LTTS: LTTS is likely to report revenue degrowth of 2.8% QoQ, mainly led by the seasonality in SWC business and slowdown in the mobility vertical. EBIT margin to remain marginally up by 69 bps QoQ due to lower topline growth. Key monitorables would be the management’s commentary on verticals and deal wins.

Coforge: We expect Coforge to deliver robust revenue growth of 5.2% QoQ, primarily driven by growth in the BFSI vertical and ramp-up of the Sabre deal. Moreover, its operating margins are likely to grow by 98bps QoQ due to higher operating leverage. Key things to watch out for are vertical commentary, new deal wins, and order book trends.

Persistent Systems: Persistent Systems is expected to report revenue growth of 1.5% QoQ, primarily due to growth in the BFSI and Hi-Tech verticals. Furthermore, we foresee operating margins to expand by 55bps due to a higher offshoring mix and topline growth. Key things to watch out for are a commentary on verticals and the deal pipeline.

KPIT Technologies Ltd:  The company is expected to moderate growth of 2.8% QoQ, amid a challenging demand environment and a slowdown in deal ramp-up. Furthermore, we foresee operating margins likely to fall by 41bps due to higher operating expenses. Key things to watch out for are a commentary on demand scenario and deal conversion pipelines.

Happiest Minds Technologies Ltd:  is expected to report robust revenue growth of 3.5% QoQ, primarily due to growth in the BFSI and healthcare verticals. Thus, we foresee operating margins to expand by 400bps due to lower onsite expenses. Key things to watch out for are a commentary on verticals and AI adoption, and the attrition rate.

Indiamart Intermesh Ltd: Indiamart is likely to register a growth of QoQ on account of subscriber addition and collection growth. We further expect operating margins to remain flat due to higher spends on marketing promotion, and brands. Key things to watch out for are business enquiries, subscriber additions, and ARPU growth.

Cyient: We expect the company to report revenue degrowth of 2.9% QoQ on account of a slowdown in DET business. Therefore, the company’s margins are expected to fall QoQ during the quarter. Key things to watch out for are the management’s commentary on business verticals and new growth areas.

Affle 3i: We estimate Affle to report robust revenue growth of 7.6% on a QoQ basis due to higher CPCU conversion across the vertical category. Operating margins are also likely to fall due to higher promotional expenses. Key things to watch out for are a) Digital ad-spends, b) AI adoption, and c) Commentary on business.

Zensar Technologies: We expect Zensar to report revenue growth of 1.2% QoQ in rupee terms, aided by the ramp-up in BFSI and healthcare verticals. We also expect the company’s operating margins likely to remain flattish. Watch out for a) Deal TCVs and pipeline, b) Attrition rate, and c) Outlook on demand growth.

Security Intelligence Systems (SIS): We expect SIS to report revenue growth of 1.4% QoQ, led by growth in the facility management and security vertical. We also expect operating margins to remain flattish. Key things to watch out for are security businesses in India and abroad, renewal/churning of contracts, and margin recovery in facility management.

Bharti Airtel: We expect Bharti Airtel to report revenue growth of 3.2% QoQ, led by growth in mobile services and Africa business. We also expect operating margins to improve by 48bps. Key things to watch out for are business verticals, ARPU, customer additions, and 5G rollout.

Our Key Picks:

Our Top Result Positive Plays: Infosys, HCL Tech, Affle 3i, Persistent Systems, Coforge, Bharti Airtel

Our Top Result Negatives Plays: KPIT technologies, Wipro, Cyient

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