Indian tech stocks made a strong rebound in Monday’s session, with Coforge, LTIMindtree, Tech Mahindra, Persistent Systems, Infosys, and Mphasis gaining between 2% and 3%, sending the Nifty IT index up 2.28%, its biggest intraday gain in nearly a month. The rally comes after sustained selling pressure had pushed many of these stocks to multi-month lows.
However, the extension of this rally remains uncertain, as analysts expect the domestically grown companies to report another muted performance in the September quarter, with clients allocating fewer funds to large initiatives amid ongoing macroeconomic and tariff uncertainties, which is likely to be reflected in Q2 results.
Over the past few quarters, clients of Indian IT services companies have been reducing IT budgets due to economic uncertainty, particularly in the US and Europe. Large enterprises continue to focus on cost optimization, resulting in higher cost take-out deals, vendor consolidation, and reduced headcount costs, said Axis Securities in its latest report.
The brokerage expects the IT services sector to report moderate growth in Q2FY26, driven by steady deal pipelines but constrained by weak demand and macro uncertainties such as Trump-era tariffs, H-1B visa restrictions, the proposed US HIRE bill, and the ongoing trade war.
Centrum Broking echoed a similar view, noting that the operating performance of IT services companies is expected to remain muted due to macro uncertainties following tariff-related announcements by the US government in April 2025.
Some improvement has been seen in discretionary tech spending in the BFSI and technology verticals, but sectors such as manufacturing, automotive, communications, and retail remain weak. Clients are cautious, leading to longer decision-making cycles, the brokerage added.
Similarly, Motilal Oswal expects September quarter to be a muted quarter for IT services, with no material improvement over the previous quarter.
Mid-cap IT firms expected to outperform
Motilal Oswal projects quarter-on-quarter (QoQ) constant currency (CC) revenue growth of 0.3%–2.4% for large-cap IT companies, while noting that mid-caps are likely to outperform, with growth ranging from -0.5% to 6.0%.
Centrum Broking expects Tier 1 IT companies to report QoQ revenue growth of +0.4% to +1.5% in USD terms, whereas select Tier 2 IT companies are expected to outperform Tier 1 peers, driven by strong operational execution and strength in key verticals.
Axis Securities forecasts revenue growth of 0%–3% QoQ in USD terms and 1%–4% QoQ in rupee terms, supported by stable deal ramp-ups and improving demand in select industry pockets.
Infosys, HCL Tech, Coforge emerge as analysts’ top picks
Amid the muted outlook for the IT sector, analysts continue to differentiate between large-cap and mid-cap names based on expected performance and resilience to macro and discretionary spending pressures.
Axis Securities expects Infosys, HCL Tech, Affle 3i, Persistent Systems, and Coforge to report strong performance, while Zensar Technologies, Wipro, and Cyient are likely to deliver weaker results. The brokerage maintains a cautious stance overall but highlights these potential outperformers.
Centrum Broking has maintained a status quo on all ratings. Among Tier 1 IT companies, it prefers Infosys and TCS, while for Tier 2 firms, it favors Coforge, LTIMindtree, and Persistent Systems.
Motilal Oswal emphasizes a bottom-up approach in IT stock selection. Among large caps, it highlights Tech Mahindra and HCL Technologies, while in the mid-tier segment, it favors Coforge and Hexaware Technologies.
The brokerage notes that Tech Mahindra shows early signs of transformation under new leadership and improving execution in BFSI, with operations relatively decoupled from discretionary spending trends. HCL Technologies is preferred for its all-weather portfolio that can withstand macro uncertainties.
For mid-cap IT companies, Coforge and Hexaware remain top picks, with the previous downcycle demonstrating that mid-tier firms can thrive even in cost-focused client environments.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
