Earnings Preview: Muted Q2FY26 ahead for IT companies; mid-caps seen outperforming large-caps: Motilal Oswal

India's top technology companies are set to start announcing their September quarter results from next week, and analysts expect Q2FY26 to be a muted quarter for IT services, with no material improvement over the past quarter.

According to analysts, ongoing macroeconomic and tariff uncertainties have led clients to allocate fewer dollars to large initiatives, and this is expected to be reflected in the September quarter numbers. These weak projections also suggest that a recovery in tech stocks may not be visible in the near term.

Mid-caps to outperform large caps again

Motilal Oswal expects quarter-on-quarter (QoQ) constant currency (CC) growth in 2QFY26 to range between 0.3% and 2.4% for large-cap IT companies, while mid-caps are expected to outperform again, with growth projected between -0.5% and 6.0%.

For large-cap companies, Motilal Oswal projects TCS to report 1% QoQ CC revenue growth, with the BSNL ramp-up likely from 3QFY26. Infosys is expected to post 2.4% QoQ CC growth.

Wipro is likely to report 0.3% QoQ CC growth, slightly above the midpoint of guidance, supported by inorganic contributions, while the brokerage anticipates Tech Mahindra to post 1% QoQ growth. LTIMindtree is likely to report 2% CC growth, aided by the agri-deal ramp-up.

Among mid-tier firms, Motilal Oswal expects Coforge to lead with approximately 6% QoQ CC revenue growth, driven by the steady ramp-up of the Sabre deal and execution of large contracts. Persistent Systems and Hexaware are likely to deliver 3.5% and 3.3% QoQ CC growth, respectively, while Mphasis is anticipated to report 1.5% CC growth.

For ER&D companies, a gradual recovery is expected from 3Q onward. KPIT Technologies is projected to report flat QoQ CC growth due to lower-than-expected contributions from Caresoft, while Tata Teleservices, Tejas Networks, and L&T Technology Services are likely to report 1.5%, 1%, and 1% CC growth, respectively.

Cyient DET is expected to post 0.5% CC growth, reflecting some stabilization. The brokerage is factoring in a cross-currency tailwind of approximately 30–50 basis points for most companies.

Sequential margin gains to remain muted

According to the brokerage, TCS EBIT margins may decline by 20 basis points due to wage hikes and lower utilization, while HCL Technologies and Infosys are expected to see improvements of 50 basis points and 40 basis points, respectively.

Tech Mahindra and LTIMindtree could gain 50–60 basis points, Coforge may rise 80 basis points to 14%, Hexaware Technologies is expected to normalize after 1Q one-offs, Cyient DET expands 60 basis points, and ER&D peers are projected to remain stable, except for Tejas Networks, which may post sequential gains.

Tech Mahindra and Coforge remain brokerage top picks

Motilal Oswal continues to prioritize a bottom-up play in IT, highlighting Tech Mahindra and HCL Technologies among large caps and Coforge and Hexaware Technologie in the mid-tier segment.

The brokerage said it prefers Tech Mahindra, seeing early signs of transformation under new leadership and improving execution in BFSI, noting that Tech Mahindra’s transformation remains relatively decoupled from discretionary spending. Motilal Oswal also likes HCL Technologies for its all-weather portfolio.

For mid-caps, the brokerage said Coforge and Hexaware remain top picks and noted that the previous downcycle showed mid-tier firms can thrive in cost-focused environments.

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