Purchase or promote? What TCS, HCL Tech outcomes imply for IT shares after Rs 75,000 crore FII selloff
Brokerages monitoring the Q3 numbers recommend the sector’s outlook hinges on a fragile stability between structural demand shifts and near-term execution. Jefferies famous that TCS’s quarter delivered largely in-line income with muted margin efficiency and restricted proof of a significant pick-up in worldwide development. Productiveness positive factors embedded in contract renewals, whereas useful for effectivity, are anticipated to mood topline momentum as purchasers push for 10–15% effectivity enhancements, main the agency to take care of a Maintain score with a revised goal of Rs 3,485.
In contrast, analysts at Jefferies and Emkay see HCL Applied sciences’ outcomes as comparatively extra resilient. Emkay highlighted that HCL Tech posted better-than-expected income and margin outcomes, supported by sturdy web new deal wins and increasing AI-linked revenues. Jefferies expects HCL Tech to ship the very best recurring EPS compound annual development amongst India’s high 5 IT corporations over FY26–28, underpinning a Purchase view with a rolled-over goal worth.
This nuanced backdrop of modest development, pricing strain, persistent geopolitical and discretionary spend headwinds, however pockets of structural AI demand has formed market commentary across the notion of an inflection level, not as a consensus purchase sign, however as a juncture the place stock-specific execution and demand traction, relatively than broad sector momentum, will seemingly drive efficiency.
HCL Applied sciences delivered the quarter’s standout efficiency, posting better-than-expected income and margin outcomes which have prompted bullish calls from key brokerages. Income grew 4.2% quarter-on-quarter in fixed foreign money phrases, about 1.3% forward of estimates, whereas EBITDA margins expanded 111 foundation factors to 18.6%, Emkay famous.
The corporate generated over $146 million in superior AI income, roughly 4% of complete income and up 19.9% sequentially, pushed by Agentic AI, Bodily AI, and AI Manufacturing facility implementations. Internet new-deal complete contract worth wins got here in sturdy at $3 billion, with administration indicating that annual contract worth bookings hit a four-year excessive.
Emkay retained its Add score with a goal of Rs 1,700, tweaking FY26–28 EPS estimates marginally after factoring within the Q3 operational beat. The brokerage highlighted that HCL Tech has narrowed its FY26 total fixed foreign money income development steerage to 4–4.5% and elevated companies income development steerage to 4.75–5.25%.
TCS Faces Progress Headwinds Regardless of AI Traction
TCS, in contrast, delivered a extra blended quarter that left analysts cautious regardless of pockets of energy. December quarter income got here in largely according to expectations, although margins missed estimates. Deal bookings stood at $9.3 billion, down 9% year-on-year, benefiting from a mega deal win in North America.
The corporate highlighted an acceleration in rapid-builds for AI initiatives, which tripled in quantity through the quarter as purchasers moved from experimental to scaled implementations. Annualised AI income grew 17% quarter-on-quarter in fixed foreign money to $1.8 billion.
TCS stated productiveness positive factors of 10–15% are actually being constructed into contract renewals, limiting sharp income upticks whilst AI adoption accelerates.
“Whereas deal bookings are wholesome, elevated ask of productiveness positive factors by purchasers and pricing strain throughout renewals will preserve FY27 development in examine,” Jefferies stated, sustaining a Maintain score with a goal worth of Rs 3,485. The brokerage expects TCS to ship simply 5% recurring EPS CAGR over FY26–28, the bottom amongst India’s high three IT corporations.
Jefferies additionally famous that TCS’s outcomes “provide restricted proof of any pick-up in development of worldwide enterprise” and identified that the inventory is buying and selling at 22x one-year ahead PE, a ten% premium to Accenture versus a five-year common premium of 5%. “We consider weak earnings development outlook will restrict the upsides,” the brokerage stated.
Systematix struck a barely extra constructive tone, elevating its goal worth to Rs 3,817 from Rs 3,733 and noting that at 22x one-year ahead earnings, TCS trades at a 12% low cost to its 10-year common, providing a beneficial entry level. The agency revised its USD income CAGR estimate for FY25–28 to three.5% from 2.7%, factoring in some enchancment in deal wins and the demand atmosphere.
Nevertheless, Systematix additionally revised FY26 and FY27 EPS estimates downward by 2.8% and 1.5% respectively.
Elara maintained an Accumulate score with an unchanged goal of Rs 3,600, noting that whereas AI revenues witnessed larger traction, “non-AI income continued to be smooth. We consider development in each AI and non-AI revenues is essential for any significant restoration in firm development.”
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(Disclaimer: The suggestions, recommendations, views, and opinions given by specialists are their very own. These don’t signify the views of The Financial Occasions.)
