War risks keep numbers flat, outlook uncertain: Analysts

The current geopolitical environment and ongoing West Asia crisis will impact Indian IT services firms both in terms of deal wins and revenues. Though analysts said there would not be major disruptions from the ongoing war on numbers, deal wins might be impacted in the short-term and that client spending on large deals amid war escalation risks temper near-term revenue traction.

The country's largest IT services firm, Tata Consultancy Services (TCS), will begin Q4FY26 earnings season on April 9, followed by Wipro on April 16. HCLTech and Infosys will announce their Q4FY26 results on April 21 and April 23, respectively.

Q4FY26 Results

HDFC Securities said it would be another muted March quarter for the IT services sector, with Tier-1 players' growth projected at -1.1 to +0.9% QoQ cc, and mid-tier companies ranging growth from -1.8% to +3.4%. However, the rupee depreciation will bring some respite to margins, but AI-led deflation concerns triggered the recent multiple de-rating.

"Launch of new models from GenAI platforms like Claude and Palantir fuelled a 24% correction over the past three months on fears of disrupting traditional SaaS/IT models.

Indian IT services companies note that deploying new GenAI models will prove difficult in complex regulatory brownfield environments. However, the expected 6-7% deflation impact (up from 4%) will be offset by net-new AI-centric deals in a $300-400 billion opportunity pool, though this will temper the recovery pace," HDFC Securities said.

It said the sector growth recovery is now hinging on pure execution capability as new deals are mostly outcome-driven, pricing is agent-augmented and renewals come at discounts.

JM Financial noted that following the third quarter earnings season, investors turned positive, but it declined subsequently due to concerns around the potential impact of GenAI leading to underperformance of 15% in February and March.

On top of this, war has introduced an additional layer of uncertainty for IT services firms. It said INR depreciation is the only relief for Indian IT and it is likely to support margins in the near-term.

Last Thursday, the rupee appreciated 1.40% to 93.15, as it recovered after extreme weakness at 95.21. JM Financial expects Infosys’ FY27 guidance to be 2% to 4% while HCLTech (IT Services) could guide for 4% to 6% based on its 4Q expectation.

For the fourth quarter of FY26, the brokerage firm expects cc IT Services revenue growth of -0.7% to 7.4% YoY (-1.8% to 1.6% QoQ) for the top six companies, given lower working days. For the mid-tier Indian IT firms, it estimates cc revenue growth of 3% to 22% YoY (-0.3% to 3.6% cc QoQ), led by Persistent.

The brokerage firm expects Wipro to guide for -1.5% to +0.5% QoQ cc revenue growth in Q1 largely due to delay in deals getting ramped up. It expects HCLTech to guide for 4% to 6% YoY revenue growth for IT services in FY27 (3% to 5% for the overall business).

Motilal Oswal Financial Services expects margins to be range-bound for TCS and Infosys. "We expect a margin contraction for Wipro (Harman DTS dilution, wage hikes, slower growth) and HCLTech (wage hikes, restructuring headwinds and P&P decline)," it said.

Among mid-caps, Hexaware and LTTS may see about 40bp/60bp pressure due to ramp-ups, seasonality, and wage hikes. The brokerage firm said the fourth quarter is likely uneventful, but AI deflation and war risks keep the outlook uncertain.

Motilal Oswal said if the war persists, demand is likely to be affected, whereas AI deflation is more a question of what AI will be capable of in the next 2-5 years, rather than the last quarter.

As far as verticals' performance in Q4, BFSI remains relatively resilient. Motilal Oswal said manufacturing is mixed — Auto OEMs are adjusting to tariff risks, but spends remain elusive. HiTech is broadly flat, travel & transportation is likely to be impacted by war-related concerns, with some engagements facing delays.

Among large caps, Motilal Oswal said it prefers HCLTech and Tech Mahindra. "We like HCLT as the company remains the fastest-growing large-cap IT services firm, and we like its all-weather portfolio, which continues to outperform in an uncertain demand environment. For TECHM, we see signs of transformation under the new leadership and improving execution in BFSI. We believe TECHM’s transformation remains relatively decoupled from discretionary spending," it said. The brokerage firm expects TCS and Infosys’ EBIT margins to be range bound in the fourth quarter.