Indian IT companies are expected to face a challenging first quarter on the revenue front, primarily driven by volatile macroeconomic conditions, ongoing geopolitical issues, and increasing client pressure to pass on productivity gains from AI adoption. According to a recent report by Equirus Securities, cautious spending on discretionary and new initiatives by clients could delay the significant scaling up of AI implementation and the return on investment they seek.
Q1 Performance Outlook for IT Giants
Equirus projects that the top six large Indian IT companies will likely report constant-currency organic US dollar sales ranging from a 1.7 percent quarter-on-quarter (QoQ) decline to a modest 1.1 percent growth in Q1. Wipro IT Services is expected to be at the lower end of this spectrum, while Tech Mahindra could see growth closer to the upper end.
Among mid-cap firms, Equirus anticipates healthier organic QoQ US dollar sales growth from companies like Persistent, Mphasis, and eClerx. The brokerage notes that cross-currency headwinds might impact overall consolidated US dollar sales growth by flat to 30 basis points.
Margins and Demand Commentary
Despite the revenue challenges, most large-cap companies are expected to maintain strong execution on EBIT margins in Q1 FY27E. This is attributed to favorable foreign exchange tailwinds, stable supply-side conditions, and ongoing gains from cost optimization and productivity initiatives. The average rupee-dollar spot rate depreciated by approximately 3 percent QoQ during the quarter, further aiding margins.
Demand commentary from IT vendors is likely to remain measured, as broader macro and geopolitical uncertainties continue to make enterprise clients cautious about discretionary spending. Equirus suggests that AI-led transformation spending will primarily be funded through cost takeouts, outsourcing, and vendor consolidation deals, rather than a significant increase in overall IT budgets in the near term. Management commentary on the transformation pipeline and growth outlook beyond Q1 FY27E will be crucial.
Equirus's Selective Stock Recommendations
Equirus maintains a selective approach within the IT sector, preferring certain large-cap and mid-cap stocks. The brokerage holds a 'Long' rating on several companies, indicating a positive outlook:
- Birlasoft: Target Price Rs 434
- Coforge: Target Price Rs 1,410
- Cyient: Target Price Rs 1,105
- eClerx: Target Price Rs 2,040
- Infosys: Target Price Rs 1,460
- Mphasis: Target Price Rs 2,900
- R Systems: Target Price Rs 455
- TCS: Target Price Rs 2,935
- Tech Mahindra: Target Price Rs 1,695
- Zensar Technologies: Target Price Rs 695
Additionally, Equirus has an 'Add' rating for:
- KPIT Technologies: Target Price Rs 715
- L&T Technology Services: Target Price Rs 3,865
- LTIMindtree: Target Price Rs 4,685
- Netweb Technologies: Target Price Rs 4,110
Conversely, the brokerage has issued a 'Reduce' rating for HCL Technologies (Target Price: Rs 1,415), Persistent Systems (Target Price: Rs 5,010), and Wipro (Target Price: Rs 208), reflecting a less favorable short-term view on these particular stocks.