TCS shares fall by up to 2% ahead of Q1 results; Nifty IT slips as Street braces for muted quarter

The Nifty IT index traded lower on Thursday, even as the broader market remained positive, with investors turning cautious ahead of Tata Consultancy Services' (TCS) June-quarter earnings, which are scheduled to be announced after market hours. Analysts expect the IT bellwether to report another muted quarter amid macro uncertainty and weak discretionary spending.

The Nifty IT index fell as much as 0.8% in early trade, weighed down by losses in sector heavyweights such as Infosys, TCS, HCLTech and Tech Mahindra.

Shares of TCS declined as much as 2% to ₹2,016.05 ahead of its June-quarter earnings report. At the time of writing, the country's largest IT services company was trading at ₹2,038.70, down 0.96%, with a market capitalisation of ₹7.37 lakh crore.

Infosys, the country's second-largest software exporter, fell as much as 1.48% to ₹1,053.50. Tech Mahindra and HCLTech also traded in the red during early deals.

Among the gainers, Coforge led the pack, rising 0.98% to ₹1,460, followed by L&T Technology Services (LTTS), which gained 0.65% to ₹3,818.80. Mphasis rose 0.41%, Wipro advanced 0.37%, while Persistent Systems also traded marginally higher.

Meanwhile, the benchmark indices traded firmly higher, with the Nifty50 rising 161.70 points, or 0.68%, to 24,043.75, while the Sensex gained 531.11 points, or 0.69%, to 77,034.71. The broader market outperformed the benchmarks, with the Nifty MidCap index advancing 1.14% and the Nifty SmallCap index climbing 1.5%.

TCS seen reporting flat revenue growth, lower margins

Nomura expects TCS to report flat quarter-on-quarter constant currency revenue growth in Q1FY27, citing the impact of the Middle East conflict, delays in project ramp-ups and continued weakness in certain business verticals.

The brokerage expects EBIT margin to contract by around 100 basis points sequentially due to annual salary hikes, partly offset by favourable currency movement and cost optimisation initiatives.

Analysts will closely monitor management commentary on client discretionary spending amid macro uncertainty in the U.S., restructuring initiatives, AI adoption, demand in the BFSI segment, cost optimisation projects and the impact of the West Asia conflict on business.

Motilal Oswal Financial Services also expects sequential revenue growth to remain flat, with weakness in the Communications vertical offsetting growth in the BFSI and Consumer segments. The brokerage expects EBIT margin to contract by 140 basis points sequentially to 23.9%, mainly due to annual wage hikes.

ICICI Securities expects TCS to report 0.3% sequential constant currency revenue growth. The brokerage expects deal bookings of $9-11 billion during the quarter, supported by nine large deal wins, including a mega AI-led business transformation contract with SKF.

With TCS set to announce its results later today, investors will closely watch management commentary on discretionary spending, AI monetisation, deal momentum and the demand outlook, which could set the tone for the rest of the IT earnings season.

Sector outlook remains subdued

After Accenture indicated that client technology budgets remain constrained and incremental AI spending is largely concentrated in cybersecurity, brokerages expect Indian IT companies to continue facing near-term demand challenges.

India's top IT services companies are expected to report muted earnings for the June quarter of FY27, as weak discretionary spending, prolonged client decision-making and AI-led cost optimisation continue to weigh on revenue growth, according to Emkay Global Financial Services.

The brokerage expects the country's five largest IT companies - TCS, Infosys, HCLTech, Wipro and Tech Mahindra - to post mixed earnings in the June quarter. While a weaker rupee is likely to provide some support to margins, revenue growth is expected to remain under pressure.

Emkay said the evolving AI-led technology landscape is prompting enterprises to reassess technology budgets and investment priorities, resulting in delays in spending decisions. At the same time, AI-driven productivity gains, vendor consolidation and changing deal structures are creating fresh challenges for traditional IT services providers.

Among the large-cap IT companies, Infosys and Tech Mahindra are expected to outperform peers on sequential revenue growth, while TCS, HCLTech and Wipro are likely to report relatively weaker performance.

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)