The contrasting Q3 results from Tata Consultancy Services and HCL Technologies have intensified debates among brokerages and market strategists about the IT sector's direction, particularly as the industry faces a substantial ₹75,000 crore foreign institutional investor selloff that has made it among 2025's worst-performing sectors.

HCL Tech Delivers Standout Q3 Performance

HCL Technologies emerged as the quarter's clear winner, posting results that exceeded analyst expectations across key metrics. The company's operational excellence was evident in multiple areas of performance.

The company's AI initiatives showed particularly strong momentum, with advanced AI revenue reaching approximately 4% of total revenue. This growth was driven by implementations across Agentic AI, Physical AI, and AI Factory solutions. Management indicated that annual contract value bookings achieved a four-year high, demonstrating robust client engagement.

Emkay retained its Add rating with a target price of ₹1,700, highlighting that HCL Tech has refined its FY26 guidance with overall constant currency revenue growth narrowed to 4-4.5% and services revenue growth increased to 4.75-5.25%. Jefferies expects HCL Tech to deliver the highest recurring EPS compound annual growth among India's top five IT firms over FY26-28.

TCS Encounters Mixed Results Despite AI Progress

TCS presented a more complex picture, with results that met revenue expectations but fell short on margin performance. The company's December quarter revealed both strengths and challenges in the current operating environment.

The company highlighted significant acceleration in AI project implementations, with rapid-builds for AI projects tripling in volume as clients transitioned from experimental phases to scaled deployments. However, TCS noted that productivity gains of 10-15% are increasingly being incorporated into contract renewals, which may limit sharp revenue increases despite growing AI adoption.

Jefferies maintained a Hold rating with a target price of ₹3,485, expressing concerns about limited evidence of meaningful international business growth pickup. The brokerage expects TCS to deliver just 5% recurring EPS CAGR over FY26-28, the lowest among India's top three IT firms.

Brokerage Perspectives and Valuation Concerns

Analyst opinions reflect the nuanced nature of the current IT sector landscape, with valuations and growth prospects drawing mixed assessments.

Systematix adopted a more constructive stance on TCS, raising its target price to ₹3,817 from ₹3,733. The firm noted that at 22x one-year forward earnings, TCS trades at a 12% discount to its 10-year average, potentially offering a favorable entry point. However, Systematix revised FY26 and FY27 EPS estimates downward by 2.8% and 1.5% respectively.

Jefferies pointed out that TCS trades at a 10% premium to Accenture versus a five-year average premium of 5%, raising questions about relative valuation attractiveness. The brokerage emphasized that weak earnings growth outlook may limit upside potential.

Sector Outlook Amid Structural Shifts

The Q3 results underscore the IT sector's position at a critical juncture, where stock-specific execution and demand traction are likely to drive performance rather than broad sector momentum. Brokerages suggest the sector's outlook depends on balancing structural demand shifts with near-term execution challenges.

Key factors shaping the sector include persistent pricing pressures, geopolitical headwinds affecting discretionary spending, and emerging pockets of structural AI demand. The combination of modest growth expectations and client demands for significant productivity improvements creates a complex operating environment for IT services companies.

Elara maintained an Accumulate rating on TCS with a target of ₹3,600, noting that while AI revenues showed higher traction, non-AI revenue remained soft. The brokerage emphasized that growth in both AI and non-AI revenues will be critical for any meaningful recovery in company growth trajectories.

Tata Consultancy Services has delivered impressive Q3FY26 financial results that exceeded analyst expectations across key metrics. The IT services giant reported strong revenue growth and maintained healthy profit margins, prompting positive analyst recommendations.

Financial Performance Highlights

The company's Q3FY26 performance demonstrated robust fundamentals across multiple parameters:

The adjusted profit after tax figure excludes one-off restructuring and statutory impact of new labor laws expenses totaling ₹34.00 billion, providing a clearer view of operational performance.

Segment-wise Growth Analysis

TCS demonstrated balanced growth across various business segments and geographical markets. The regional market and others segment led the growth trajectory with a strong 4.6% quarter-on-quarter increase in constant currency terms.

Key sector performance included:

• Consumer business: +1.3% QoQ CC
• Energy, resources, and utilities: +1.0% QoQ CC
• Life sciences and healthcare: +0.9% QoQ CC

Nine-Month Performance

For the nine-month period ending Q3FY26, TCS showed consistent growth momentum compared to the same period in FY25:

Deal Pipeline and Market Position

The company reported a total contract value of $9.30 billion for Q3FY26, representing an 8.8% decline year-on-year. Despite this decrease, TCS maintained a stable book-to-bill ratio of 1.2x, indicating healthy demand conversion capabilities.

Analyst Outlook and Recommendations

Motilal Oswal projects continued strong performance for Q4FY26, expecting revenue, EBIT, and adjusted PAT to grow 6.8%, 10.8%, and 10.9% year-on-year respectively. Based on the company's solid fundamentals and growth prospects, the brokerage has reiterated its buy rating with a target price of ₹4,400, suggesting a potential upside of 36% for investors.