TCS and HCL Technologies kicked off the December quarter earnings season with broadly stable results that largely met Street expectations, signaling that the Indian IT sector may be moving past its most challenging phase. Brokerages highlighted stabilizing demand, steady deal momentum, and early traction in AI-led projects as key positives, though they cautioned that uneven growth visibility could limit sharp sector re-rating in the medium term.

Strong Execution and Deal Momentum Drive Q3 Performance

HCL Tech emerged as the standout performer with better-than-expected execution during the quarter. The company's strong performance across key metrics prompted management to raise FY26 revenue growth guidance, a move that brokerages including Nomura and Emkay highlighted as significantly positive.

TCS delivered results largely in line with expectations, with revenue growth marginally ahead of consensus and margins holding firm. The company's deal momentum remained steady, supported by a large BFSI deal that contributed to the overall contract value wins.

AI Emerges as Key Growth Driver

Both companies demonstrated meaningful traction in AI-related services, addressing market concerns following the ₹75,000.00 crore FII selloff in Indian IT stocks. HCL Tech reported particularly strong AI performance metrics that underscored the growing importance of this segment.

Nomura noted that HCL Tech's AI revenue growth was primarily driven by demand for setting up and managing AI infrastructure services. For TCS, Emkay Global analysts highlighted that demand improvement through Q2 and Q3 was supported by a steady rise in short-cycle, return-driven AI projects across industries, with several projects now moving beyond pilot stages.

Across both companies, brokerages observed improving demand for short-cycle, return-on-investment-driven projects, particularly in:

• Cloud modernization initiatives
• Automation solutions
• AI-led transformation projects

Goldman Sachs noted that despite uneven growth patterns, the overall demand environment appears "stable to improving" for Indian IT services.

Challenges Persist Despite Positive Trends

Despite the encouraging developments, both companies faced headwinds that impacted their quarterly performance. Growth recovery remained patchy, with several one-off costs and market-specific challenges weighing on results.

For HCL Tech, Nomura reported that profits were affected by a one-off provision of approximately ₹956.00 crore related to higher gratuity and leave encashment under new labor laws. Additionally, margins in the core services business remained largely flat due to restructuring costs and salary hikes.

TCS faced similar challenges, with brokerages including Nomura and Emkay noting that earnings were impacted by:

• One-off costs related to labor code provisioning
• Restructuring expenses
• Legal charges
• Seasonal weakness in North America and UK markets
• Softer growth in the BFSI segment

Market Performance and Outlook

IT stocks have staged a notable recovery over the past three months, with TCS gaining around 11.00% and HCL Tech rising nearly 17.00% during the October-December period. This performance reversed sharp losses seen in the previous quarter.

The Q3 results confirm that both TCS and HCL Tech are successfully navigating the industry downturn through disciplined execution, steady deal wins, and early AI traction. However, brokerages believe that until growth becomes broader-based and more durable, upside from current valuations is likely to remain measured. The sector's ability to sustain this recovery momentum will depend on continued stabilization in demand patterns and successful scaling of AI-related service offerings.

Tata Consultancy Services and HCL Technologies shares staged a midday recovery on Tuesday, reversing early post-earnings losses to trade in positive territory as investors reassessed their Q3 FY26 results. The turnaround coincided with broader market improvement, with both BSE Sensex and NSE Nifty erasing morning declines to move into green territory.

Stock Performance Recovery

The intraday performance of both IT majors showed a clear reversal pattern from their morning lows:

TCS stock demonstrated resilience after initial concerns around limited growth visibility weighed on early trading. The recovery built on the previous session's firm 1.1% gain ahead of the earnings announcement, suggesting selective buying interest during weakness.

HCL Technologies clawed back from morning losses exceeding 2%, despite delivering strong operational performance and upgrading guidance in their Q3 results. The stock's recovery indicated stabilizing sentiment after initial post-results selling pressure.

Analyst Sentiment and Concerns

Brokerages acknowledged steady execution and operational stability from both companies but maintained cautious outlooks. For TCS, analysts highlighted several constraining factors including muted international business trends, modest forward indicators, and limited clarity on sharp growth acceleration prospects. Most research houses remained in neutral or cautious territory despite recognizing operational stability.

HCL Tech faced different concerns from the analyst community. Despite strong fundamentals and guidance upgrades, brokerages flagged seasonality risks, particularly in the products business segment. Valuation comfort levels and historical post-results performance patterns also contributed to restrained near-term optimism.

Longer-Term Performance Challenges

Despite the midday recovery, both stocks continue facing significant longer-term headwinds:

The sustained pressure on both stocks over the past year reflects broader investor concerns about the IT sector's growth trajectory and earnings momentum sustainability.

Market Focus Areas

Investor attention remains concentrated on several key factors that could drive future performance. Deal execution capabilities, demand momentum sustainability, and the translation of AI-led initiatives into durable growth recovery represent critical areas of focus. Analysts broadly recognized healthy deal pipelines and resilient margins from both companies, but enthusiasm remained tempered by questions around growth sustainability and near-term earnings momentum.

The intraday rebound suggests some investors viewed the early weakness as a selective buying opportunity, though the cautious analyst commentary indicates that significant catalysts may be needed to drive sustained upward momentum in both stocks.