Q2 IT earnings preview: Key things to watch at TCS, Infosys, HCLTech and other firms

India’s largest IT services and consultancy firm, Tata Consultancy Services (TCS), will kick off the earnings season for the Indian IT pack on October 8, followed by HCLTech on October 12, and Wipro and Tech Mahindra on October 15. Accenture’s recent Q4 earnings, in which the company beat market expectations, along with its management’s positive commentary on enterprise AI demand and strong FY27 outlook, helped ADRs of tech firms post strong gains on the New York Stock Exchange.  

Demand and growth guidance   

Analysts expect a soft quarter for the IT companies, with mid-cap firms yet again growing faster than the large peers. For tier 1 companies, HDFC Securities expects growth to be in the range of -0.4% to +2.0% QoQ CC and for the mid-tier companies from +0.6% to +6.3%, partly aided by acquisitions. "The tier-1 QoQ USD revenue growth is expected to range between -0.5% and +1.8% while YoY growth is likely to be between -0.1% and +5.4%. HCLTech and Tech Mahindra are expected to deliver the best tier-1 prints, with HCLTech leading at +2.0% QoQ CC growth, alongside ~50 bps margin expansion, and Tech Mahindra at +0.9% QoQ CC growth, translating into a tier-1-leading +5.3% YoY CC growth and 190 bps YoY margin expansion. TCS (+0.5%) and Infosys (+1.3%) are expected to trail expectations for a seasonally strong quarter, while Wipro is likely to decline 0.4% QoQ CC," the note said. 

Another brokerage, Motilal Oswal Financial Services, noted that 2QFY27 results are likely to mirror the tepid macro environment, with QoQ CC growth for large-cap firms expected to range from -0.5% to 3.0% while mid-caps are expected to grow between 0% and 12%. “Across the sector, BFSI is expected to remain the key growth driver, supported by steady deal conversion and resilient spending. HiTech is also expected to remain stable. HLS, Aerospace, and E&U are expected to see selective growth, supported by deal execution and AI-led engineering. Consumer, Telecom, and Travel & Transportation are expected to remain under pressure, with weakness in discretionary spending continuing to weigh on demand,” analysts at MOFSL noted.  

Of the large-cap firms that provide annual growth guidance, Infosys and HCLTech have said they expect their growth for the year to be in the range of 2%-3.5% and 1.5%-3.5%, respectively. Analysts now expect Infosys to trim its guidance. Analysts at Kotak Institutional Securities expect Infosys to cut its guidance to 1.5%-2.5% growth, from 1.5%-3% earlier, including a 170 bps contribution from acquisitions. “We expect HCLT’s organic growth guidance to move to 2%-3% from 1%-4% earlier. After the consolidation of the HPE telco business and Jaspersoft acquisition, we expect HCLT’s overall revenue growth guidance at 3%-4%. Expect (-)2% to 0% revenue growth guidance from Wipro,” the note said. HDFC Securities, on the other hand, expects Infosys to cut its growth guidance by 50 bps to 2%-3% from 2%-3.5%. It expects HCLTech to trim the upper end of its services growth guidance to 1.5%-3% from 1.5%-3.5%. Wipro is expected to guide for growth in the range of 0% to 1% QoQ CC in Q3FY27E, factoring in furloughs.  

AI deflation impact and opportunity   

During the latest earnings call, Accenture’s management noted that AI-related engagement with large clients is growing faster than the company’s average. However, at the same time noted that with increasing AI adoption bringing more work, IT companies are also trading off by passing more productivity gains to clients for more work. “We are definitely giving more productivity due to AI. And overall, though the impact has been steady. So -- and we're offsetting as we have in the past with new kinds of work, more scope, et cetera. So absolutely giving more AI efficiencies and more than offsetting that as a whole,” said Accenture Chair and CEO, Julie Sweet, during the earnings call.   

Nomura analysts in their readthrough for Indian IT firms on the back of Accenture’s results noted that while macro environment remains similar to FY26, the impact of ongoing uncertainty in the Middle East to have intensified having an indirect effect on discretionary spending. “Pricing held steady for FY26 overall, but softened in several business areas during 4Q, with continued pricing pressure anticipated given intense competition. While AI is driving client productivity gains—a deflationary force—this is being offset by incremental work and broader scope," the report noted.

During Q1FY27 management of large cap firms alluded to AI deflation impact now showing up and firms looking at shelling out greater pricing discount and differentiated models to counter the impact.   

Kotak noted that while the investments in AI initiatives are still in early stages with a few companies having implemented AI across the organization, the focus for enterprises largely remains on cost optimization and realizing productivity savings in the near term to partly fund these investments. While new revenue use cases are still not big in terms of revenue, there has also been a significant increase in the adoption of open-source and open-weight models. "While open LLMs can provide an incremental opportunity for services providers, they could also risk steeper deflation as the adoption rises. We expect gross deflation of ~7% and net deflation of 3.5% for companies," the note said.   

Similarly, HDFC Sec analysts say that while the expected 6-7% deflation impact is being offset by net-new AI-centric deal wins, conversion remains slow. “Growth recovery is a function of execution, as new deals are increasingly outcome driven, pricing is agent-augmented, and renewals come at a discount”, the note said.     

Given that Indian IT stocks have been under pressure, and the BSE IT Index shaving of over 26% year to date the valuation also remains in focus. Kotak which recently downgraded the sector maintains that AI is increasingly viewed as changing the economics of services rather than eliminating the need for services altogether. "This places a floor for valuations. However, pricing pressure, AI-led deflation and the inability of incumbents to sustain growth beyond mid-single digits limit upside potential. Challengers are better positioned than incumbents," the note said naming TechM, Coforge, Indegene, and Sagility as top picks.

HDFC sec also sees that though IT stock valuations are at near historical lows, FCF yields still remain attractive - “We trim FY27/28/29E revenues by ~0.4-0.6%, cut multiples by ~1-2x for select names and roll over to Sep-28E EPS. We downgrade Birlasoft to ADD and upgrade Cyient to BUY. We prefer Infosys within tier-1; Persistent, Mphasis, LTM within mid- tier; and Zensar and Cyient among smaller names,” it said. Nomura on the other hand, prefers large caps such as Infosys and Cognizant and Coforge  in mid-caps as its choice.