As the Q1FY26 results season kicks off, all eyes are on the Indian IT sector. Traditionally, the first quarter has been strong for IT companies, but this time around, analysts are painting a much more cautious picture. it appears that Q1 could be tougher than usual due to multiple macro and sector-specific challenges.
Seasonal Tailwind May Not Help This Time
Historically, Q1 tends to be strong for IT services due to seasonal tailwinds, but this trend may not hold in FY26. A combination of macroeconomic headwinds and currency impact could weigh on overall performance.
BFSI Segment Emerges as a Silver Lining
Among all verticals, the BFSI (Banking, Financial Services and Insurance) segment is expected to perform better. There is visible healthy demand in this space, as also reflected in recent commentary from global banks and firms like Accenture. The BFSI vertical remains relatively less impacted compared to other segments, making it a potential outperformer this quarter.
Midcap IT to Outperform Largecaps
A major theme expected this quarter is the outperformance of midcap IT companies over largecaps. Mid-tier players are better positioned in terms of agility and client demand. They could post stronger revenue growth in constant currency terms. Companies like Coforge, Persistent Systems, and Mphasis are likely to show solid performance, while larger peers may face more challenges.
Currency Impact to Drag Revenue
A sharp decline in the US Dollar is expected to have a cross-currency impact in the range of 80 to 220 basis points across the board. This will likely dent reported revenue figures for most IT companies.
Largecap Revenue May Decline in Constant Currency Terms
Largecap IT companies such as TCS, HCLTech, and Wipro are expected to post a de-growth in revenue in constant currency terms. Exceptions include Tech Mahindra, Infosys, and LTI Mindtree, which may still manage to post modest growth.
Mixed Bag in EBIT Margins
Earnings before interest and taxes (EBIT) margins are likely to be a mixed bag this quarter. LTI Mindtree and Tech Mahindra could see positive margin expansion, while others like TCS, HCLTech, Wipro, and even Infosys may witness margin pressure.
Midcap Margins Likely to Stay Flat
While midcaps may do better in terms of revenue, their margins are expected to remain flat. Coforge may see some margin expansion of around 40 basis points, but others like Persistent and Mphasis may witness little change.
Demand Commentary and Deal Wins Will Be Crucial
Going ahead, deal momentum and management commentary on the demand environment will be closely tracked. The global environment remains challenging, especially with tariff-related uncertainties and tightening client budgets. Some companies could see budget cuts and delays in decision-making.
Final Takeaway
In summary, the Q1FY26 earnings season for IT companies may bring several surprises. While largecaps are expected to struggle both in revenue and margins, midcap IT players could deliver better performance. Companies catering to the BFSI vertical are also in a stronger position due to resilient global demand in that segment. As results start rolling in from July 10 with TCS, investors and analysts will look for clear signals on the future direction of the IT sector.
Disc:The content in this blog is intended for informational and educational purposes only. It does not constitute financial advice, investment recommendations, or an endorsement of any company or stock. Readers are advised to consult with a qualified financial advisor before making any investment decisions. The analysis and views presented are based on publicly available data and expert commentary, which may be subject to change.
