The focus of investors in India is pivoting from global geopolitical chatter to corporate fundamentals as the December quarter (Q3FY26) earnings season kicks off. The spotlight is firmly on the information technology sector, which is set to report its numbers starting next week. There is a palpable sense of anticipation that the prolonged phase of sluggish earnings may finally see a break in the third quarter.
Earnings Calendar and Sector Outlook
The earnings parade will commence with industry heavyweights Tata Consultancy Services (TCS) and HCL Technologies announcing their Q3 results on January 12. This will be followed by Infosys disclosing its report card on January 14. Historically, the December quarter presents seasonal headwinds for IT firms, primarily due to client furloughs, which typically slow down growth. Consequently, the market's attention will be laser-focused on the management commentaries for clues on demand revival, the trajectory of artificial intelligence (AI) adoption, and signals on whether the sector's worst challenges are in the rearview mirror.
Brokerage firm Motilal Oswal Financial Services notes that while furloughs may dampen sequential growth, investors are likely to look past this seasonality. The key will be the demand environment emerging from client budgeting for the calendar year 2026. "Amid macro-tariff uncertainty and a new tech cycle, we believe clients remain cautious about committing incremental spending to large programs. As a result, we expect demand to stay steady, at best marginally incremental, until January 2026 as planning cycles reset and budgets firm up," the brokerage stated.
Brokerage Projections and Stock Picks
Motilal Oswal expects large-cap IT companies to post sequential constant currency revenue growth in a band of 0.3% to 2.3%. Mid-cap players might once again outperform, with an estimated growth range of -2.5% to 3.5%. In year-on-year terms, the brokerage forecasts aggregate revenue, EBIT, and PAT growth of 7.7%, 7.2%, and 7.6% respectively for its coverage universe.
Another brokerage, Nirmal Bang, projects tier-I IT players to report 1.4% to 1.5% constant currency revenue growth, while tier-II firms could see growth between 0.5% and 3.0%, aided by better total contract value (TCV) growth. However, margins may face pressure from wage hikes, pricing challenges, and increased subcontractor costs. Nirmal Bang added that TCV may remain range-bound, but the quarter helped clear some uncertainties regarding tariff impacts and H1B visa costs.
Analysts have also highlighted specific stocks that investors could consider. Sumit Pokharna, VP of Fundamental Research at Kotak Securities, expects a moderate performance in the seasonally weak quarter. His top picks include Tech Mahindra, Coforge, Sagility, Indegene, and TCS. He noted that Tech Mahindra is on track to achieve its margin goals by FY27, while Persistent Systems and Coforge are likely to lead among mid-tier companies.
Vinit Bolinjkar, Head of Research at Ventura, pointed out that while Q3 brings seasonal challenges, some companies stand out due to strong order books and execution discipline. His recommended picks are:
- Persistent Systems for its steady growth and AI platform wins.
- Coforge for a large order book and stable margins.
- LTIMindtree due to attractive valuation and recovery in manufacturing.
- Netweb Technologies because of growth in AI systems.
- Tech Mahindra for product strength and momentum in the BFSI segment.
Bolinjkar emphasized that these stocks offer better downside protection and the potential to beat expectations. He advised investors to focus on companies demonstrating execution quality and maintaining guidance, noting that select mid-cap IT stocks present a superior risk-reward proposition heading into FY26.
