Ahead of the Q2FY27 results, brokerage firm JM Financial anticipates a challenging quarter for the Indian IT sector, citing persistent macro uncertainty and the ongoing impact of AI-led productivity pressures. Despite the NSE IT index outperforming the Nifty by approximately 7% over the last three months, largely driven by in-line Q1 results and easing AI disruption concerns, the industry faces its fourth year of subdued growth.
Q2FY27 Outlook and Guidance Revisions
JM Financial expects most large-tier IT companies to report constant-currency sequential growth ranging from -0.5% to 2.6%. Year-on-year growth is projected between -0.1% and 6.6%. The brokerage advises investors to remain selective, noting that the NSE IT index is currently trading at about 16 times its one-year forward consensus EPS.
Company-Specific Projections:
- Infosys: The firm may trim the upper end of its FY27 revenue growth guidance from 3% to 2.5%, while retaining the lower end at 1.5%. Margin guidance is expected to remain unchanged at 20-22%. Infosys is projected to report deal Total Contract Value (TCV) of $2.5-3 billion.
- HCL Technologies: JM Financial anticipates the IT Services revenue growth guidance to narrow to 2-4% from its previous 1.5-4.5% range, with the midpoint remaining constant. The acquisition of HPE’s telco business is expected to contribute 70-80 basis points to IT Services growth. Overall company guidance may narrow to 1.5-3.5%, with margin guidance holding at 17.5-18.5%. Deal TCV is estimated at $3-3.5 billion.
- Wipro: For Q3FY27, Wipro is expected to guide for constant-currency revenue growth between -1.5% and 0.5% quarter-on-quarter.
- Tata Consultancy Services (TCS): The brokerage projects TCS to report deal TCV of $8-10 billion, though a significant Porsche deal is unlikely to be included due to pending regulatory approvals.
- LTM: Deal TCV is estimated at $1.4-1.5 billion.
Margins, Deals, and H2 Commentary
Margin expansion across the sector is likely to be limited due to soft revenue growth and only a marginal 1% quarter-on-quarter depreciation of the rupee in Q2FY27. Management commentary on the second half of FY27 will be crucial, particularly concerning furloughs, discretionary spending, and the sustainability of current demand trends, given the seasonally soft period ahead.
Stock Preferences and Ratings
JM Financial expresses a preference for Tech Mahindra Ltd over Wipro in the large-tier space for Q2FY27, citing better growth visibility for Tech Mahindra from the ramp-up of large deals, while Wipro continues to lag its peers.
The brokerage has updated its ratings and price targets:
- TCS: Maintained 'ADD' rating, new target price Rs 2,375.
- Infosys: Maintained 'ADD' rating, new target price Rs 1,130.
- Tech Mahindra: Maintained 'ADD' rating, new target price Rs 1,705.
- HCL Tech: Retained 'REDUCE' rating, new target price Rs 1,135.
- Wipro: Retained 'REDUCE' rating, new target price Rs 160.
- LTM: Retained 'REDUCE' rating, new target price Rs 3,965.