India's information technology companies are expected to report modest but resilient third-quarter performance, with analysts pointing to easing deal delays and steady deal wins offsetting the usual seasonal slowdown. The December quarter typically represents the weakest period for IT services firms due to fewer billing days, but growth momentum this year appears stronger than previous cycles.

Sector Performance Expectations

Deal ramp-ups, improved conversion of pipelines, and fewer project deferrals are expected to support sequential growth, even as discretionary spending remains under pressure and geopolitical risks continue to weigh on sentiment. While demand recovery remains uneven across geographies and verticals, brokerages expect management commentary to turn more constructive during the December quarter.

Brokerage Outlook Summary

Major brokerages have provided detailed expectations for the IT sector's Q3 performance:

Company-Specific Projections

Among large firms, HCLTech and LTIMindtree are expected to grow faster, while Coforge and Sagility may outperform among mid-sized peers. Tier-2 companies are expected to continue outperforming, with Hexaware Technologies and Zensar Technologies as exceptions reporting sequential declines.

Preferred Picks by Brokerages

Large Caps:

• UBS prefers Infosys and HCLTech
• Investec expects relatively better growth at HCLTech and Wipro

Mid-Tier Firms:

• UBS favors Persistent Systems and Mphasis
• Investec anticipates strong performance from Persistent Systems and LTIMindtree

Margin and Growth Dynamics

Margins may see support from foreign exchange movements, though this could be partly offset by furloughs during the quarter. Growth will be impacted by December-quarter seasonality, but stronger deal wins are expected to support momentum compared with prior years. Tech Mahindra, KPIT Technologies, and Zensar Technologies may begin to see positive catalysts emerge.

Key Focus Areas

During earnings announcements, attention will center on several critical areas:

• Deal pipelines and conversion rates
• Artificial intelligence-led engagements and traction
• Budget visibility for calendar year 2026
• Demand outlook across geographies and verticals

Deal pipelines remain robust, with increasing traction in artificial intelligence-led deals. The bottom end of guidance may be raised for Infosys and HCLTech, reflecting improved business momentum. Commentary from Accenture does not yet indicate a recovery in discretionary spending, maintaining a cautious sector outlook despite emerging improvement signs.

The October-December quarter (Q3FY26) presents a challenging landscape for Indian IT companies, with seasonal factors creating headwinds for revenue growth across the sector. Furloughs, year-end holidays, and client shutdowns typically characterize this period as seasonally weak for IT services providers. While large IT firms face muted growth expectations, midcap companies are positioned to deliver relatively stronger performance during this quarter.

Growth Projections Show Mixed Performance

According to a CNBC-TV18 poll, growth expectations vary significantly across company sizes and segments. The data reveals a clear distinction between largecap and midcap performance expectations for the quarter.

HCLTech is expected to lead among largecap companies with nearly 3% growth, primarily driven by strength in its products business. Other large IT companies are projected to post low single-digit growth, reflecting the typical seasonal impact on their operations.

Market Conditions and Demand Environment

The current demand environment remains stable but subdued, with specific trends shaping client spending patterns. Cost optimization deals continue to dominate the landscape, while discretionary spending remains weak across client segments. JPMorgan has identified some improvement in auto technology spending, though large-scale artificial intelligence (AI) monetization remains limited.

For FY26, guidance is expected to narrow within existing ranges rather than see upgrades. Margins are likely to remain range-bound despite potential support from a weaker rupee, indicating continued pressure on profitability metrics.

Market Performance and Valuations

The Nifty IT Index demonstrated resilience with approximately 14% growth during the October-December quarter. However, the index remains down nearly 12% over the past year, reflecting broader market challenges facing the sector.

Valuation metrics show divergent trends between company segments:

Expert Outlook and Investment Perspective

Yogesh Agarwal, Head of Research at HSBC India, emphasized the seasonal nature of the current quarter's challenges. "This quarter is usually a seasonally weak quarter, and therefore it's not going to have a significant impact on the numbers or the outlook. However, we do expect a little bit of positive commentary from the management," Agarwal stated.

Regarding investment opportunities, Agarwal highlighted the growth differential between company sizes. "Larger companies probably can grow mid-single digits, while smaller companies at their scale can grow faster, and that's where investors could see more value from a long-term compounding perspective," he explained.

The analysis suggests that while Q3FY26 presents seasonal headwinds for the entire IT sector, midcap companies are better positioned to navigate these challenges and deliver superior growth rates compared to their larger counterparts.