Indian IT sector: Seasonal weakness & rupee depreciation to linger on upcoming Q3FY26 earnings

BAmong the IT large caps, TCS and HCL Tech are set to announce their Q3 results on 12th, followed by Infosys on the 14th and Tech M on the 16th of this month. Earlier in December, the largest IT services and consulting firm Accenture, beat street expectation to register a 5% year on year (YoY) revenue growth in Q1FY26, while retaining its annual guidance of 2-5% in reported currency. Among its verticals, financial services saw a 12% YoY increase, with the growth boding well for the Indian IT sector given its large exposure to the vertical.

While Q3 is a seasonally weak quarter owing to furloughs, a long holiday season in the US and European markets with lower billing, however during October to December of 2025, many companies have announced mega deals. For instance, TCS recently signed a $billion plus deal with Telefonica UK, in October Infosys won a billion plus pound contract from UK's National Health Services Business Services Authority to upgrade its payroll platform. In the first 2 quarters of the fiscal, all large-cap companies have seen steady bookings, however the management on demand has remained subdued, with no clarity on discretionary spend pick up barring efficiency/cost related AI implementation. Also given the emerging newer geopolitical headwinds, 2026 could now see uncertainty linger a lot longer than expected.

Q3FY26 revenue and margin

Markets are expecting the Indian IT firms to witness a normal impact of seasonality and unlikely throw to thrown in any surprises. The impact of furloughs is expected to be similar as seen in the past Q3 and AI and agentic related infusion in deal and adoption for efficiencies likely to continue. For the large cap companies analysts at Nomura estimate a quarter-on-quarter revenue growth of 0.5% for TCS, -0.5% for Infosys, 3.4% for HCLT, 0.5% for Wipro, 0.5% for TechM, and 2.5% for LTIM in constant currency terms. “We believe continued depreciation of the INR vs the USD to have aided margins in 3QFY26F. For most companies, we build in a q-q improvement in margins,” The Q3FY26 preview note said.

Analysts at Elara Capital expect TCS to post a flat QoQ revenue growth and a 40basis points sequential contraction in margin due to impact of two-month wage hike and lower utilisation, however this may be offset by rupee depreciation. While they expect Infosys to post a 0.5% QoQ decline in dollar revenue and a 30bps impact on the margin due to lower utilisation, they expect rupee depreciation to mitigate the hit to some extent. According to their estimates, HCL Tech, would to perform better on the back of Products and Platform business seeing seasonal strength and some recovery in retail, CPG and healthcare while Wipro could end up in the midpoint of its -0.5% to 1.5% guidance for Q3 at 0.5% QoQ on the back of ramp up in Phoenix deal announced in March of 2025.

2026 guidance

While the markets have factored in a seasonally weak quarter, the focus would be on the management commentary around the demand environment and client budgets for 2026. HSBC Global Investment research expects the fundamentals of Indian IT stocks improve in 2026/27 with a possible cyclical rebound. “Commentary from IT industry customers signals improved confidence in the business outlook and, hence, a higher propensity to spend on IT. We think business outlook sentiment is close to March 2025 levels, implying the uncertainty seen post-Liberation Day is largely in the past. More importantly, there is some visibility on the deflationary impact of AI on IT services, while monetization of AI for business-accretive deals is also closer. We still see AI deflation on IT services at 8-10% over 2-3 years, with 2025 already seeing a significant share of this impact,” said the FY27/2026 outlook and 3QFY26 preview report.

Similarly, Motilal Oswal Financial Services analysts also expect AI services demand to improve from mid-2026 with hardware-led AI capex investments leading up to spends on software, platforms, and services. “Amid macro-tariff uncertainty and a new tech cycle, we believe clients remain cautious on committing incremental spending to large programs. As a result, we expect demand to stay steady, at best marginally incremental, until Jan’26 as planning cycles reset and budgets firm up,” said the note titled Indian IT: Looking beyond 3Q noise.

Of the two large companies which provide annual revenue guidance, Nomura expects both Infosys and HCL Tech to tighten their FY26 guidance bands. “We expect Infosys to tighten its revenue growth guidance band from 1-3% to 2-3% y-y in cc terms with a 20-22% EBIT margin band. We also expect HCLT to tighten its guidance from 3-5% to 4-5% y-y in constant currency terms with an unchanged 17-18% EBIT margin band,” according to their note. For Wipro, which provides quarterly revenue guidance, the brokerage expects a 0% to +2% q-q constant currency guidance for 4QFY26F.

Brokerage top bets

Brokerages continue to see IT mid-cap companies outperforming large peers. For 3QFY26, JM financials expect revenue growth of 0.2% to 2.5% Q-o-Q for top 6 companies, while for Mphasis, Coforge, Persistent and Hexaware, they expect the constant currency revenue growth to be between -1% to 4.2% sequentially. Infosys and Mphasis are their top picks. Nomura’s top pick in the include Infosys in large caps space and Coforge in mid-caps. MOFS sees Infosys benefiting from the enterprise-wide AI spending and at its current valuations, upside risks meaningfully outweighing downside risks. The brokerage is also bullish on Tech M with signs of transformation under the new leadership and improving execution in BFSI.IN the midcap space its picks are Coforge and Hexaware. PL Capital Institutional Securities' top picks which they expect to outperform include Infosys and HCL Tech in the large cap space and within the mid cap Persistent Systems and Mphasis.