BFSI is expected to remain the most resilient vertical across the IT sector.
FinTech BizNews Service
Mumbai, July 9, 2026: YES SECURITIES has come out with Q1 FY27 Preview report on the Information Technology sector. This provides the brokerage's outlook on the IT services sector ahead of the Q1 FY27 earnings season.
Demand remains soft; discretionary recovery remains elusive; cost takeout continues to dominate
The demand environment remains soft, with macro uncertainty and AI-led ambiguity
continuing to weigh on decision-making cycles. We expect CC QoQ growth to range
from a decline of 0.6% for HCL Tech to a peak of 1.6% for Infosys, with TechM (+1.0%)
and LTM (+0.6%) tracking in between and Wipro extending its underperformance at -
0.2%. Discretionary spending remains largely deferred, and tech budgets are broadly
unchanged even as decision cycles stay elongated. Deal activity remains anchored in
cost takeouts, AI-led productivity engagements, and vendor consolidation. Margins are
expected to remain mixed, with TCS and Wipro facing the sharpest compression from
wage hikes and pricing pressure, while HCL Tech, TechM and LTM supported by
ongoing cost optimization initiatives. BFSI continues to be the most resilient vertical.
TCS: 0.7% CC QoQ growth led by BFSI and life science. Margins to decline to
24.1% due to annual wage hikes and continued investments in AI capabilities.
Infosys: 1.6% CC QoQ revenue growth led by acquisitions and gradual recovery in
BFSI and EURS. FY27 margins are expected to be in the midpoint of the guided
range.
HCLT: -0.6% CC QoQ growth due to client specific issues in telecom and
manufacturing verticals. Margins to slightly improve sequentially to 16.6%.
Wipro: -0.2% CC QoQ growth due to delayed revenue conversions. Margins to
decline to 16.4%, due to full quarter impact of wage hikes and continued
investments in AI-native platforms.
TechM: 1.0% CC QoQ growth led by telecom deal ramp ups. Margins to remain
stable supported by Project Fortius.
LTM: 0.6% CC QoQ growth supported by continued ramp-up in life science and
consumer segments. Margins are expected to decline to ~14.9% due to annual
wage hikes.
Revisiting Valuations: We lower our target multiples by ~20% to factor in subdued
demand, pricing pressure and AI-led revenue deflation. However, with valuations
now well below historical averages and much of the near-term uncertainty priced
in, we remain constructive on the sector, with Tech Mahindra continuing to be our
preferred pick.
Revisiting Valuations
Following the sharp correction in IT stocks, we revisit our valuation framework by incorporating
a more conservative DCF approach, factoring in subdued demand, delayed discretionary
recovery, pricing pressure and AI-led revenue deflation. We continue to assume a 5% terminal
growth rate for most companies (3% real growth and ~2% currency tailwind), while adopting a
lower 3% terminal growth rate for Wipro, reflecting its persistent execution challenges and
weaker growth outlook.
The DCF exercise implies forward multiples that are meaningfully below historical averages,
highlighting market concerns around a structurally lower growth trajectory and increasing
productivity-led pricing resets. Accordingly, we recalibrate our valuation framework by blending
DCF-implied multiples with historical trading averages, resulting in a revised multiple band of
~14.5x-24x, implying an average multiple cut of nearly 20% versus our previous assumptions.
Despite the de-rating, we refrain from an aggressive cut in multiples as current valuations already
discount a large part of the near-term uncertainties surrounding AI, pricing pressure and a slower
discretionary recovery. Moreover, Indian large-cap IT companies continue to enjoy structural
advantages in terms of strong balance sheets, resilient deal pipelines and emerging AI
monetization opportunities.
Tech Mahindra remains our top pick, supported by improving execution, a visible margin
turnaround and better growth prospects under the new management. Conversely, while Wipro
screens inexpensive on DCF, we remain cautious given its inconsistent execution and delayed
conversion of deal wins into revenues, limiting the scope for a meaningful re-rating despite
attractive valuations.
Overall, we believe the recent correction has significantly improved the sector's risk-reward
profile, although near-term performance is likely to remain constrained by demand uncertainty
and a gradual recovery in discretionary spending.
LTM
We expect LTM Ltd to report revenues of Rs
114.4bn, up 16.3% YoY and 1.4% QoQ. In
constant currency (CC) terms, growth is projected
at 6.8% YoY and 0.6% QoQ. EBITDA is estimated
at Rs 19.9bn, up 20.9% YoY and 1.1% QoQ, with
margins expected to moderate to 17.4%. PAT is
projected at Rs 14.8bn, representing growth of
18.0% YoY and 6.3% QoQ.
