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IT Sector – Q3FY26 Result Preview

ICICIdirect Research 09 Jan 2026 DISCLAIMER

The December quarter is expected to be steady but muted for the IT sector. The large caps, are likely to report 0.3–2.2% QoQ CC growth, driven by resilient BFSI demand and ramp-up of portfolio specific large deals, partly offset by seasonal furloughs and lower working days in Q3. HCLTech is likely to lead growth among large caps with ~2.2% QoQ CC growth, supported by positive seasonality in its software products business. While LTIM will see healthy growth of ~2.1% QoQ on the back of previously won large deal ramp-ups.
EBIT margins for large caps are expected to remain range-bound (-10 bps to +50 bps QoQ), with currency tailwinds and AI-led productivity gains getting offset by wage hike impact and furlough-related utilisation softness in Q3. TechM and HCL Tech will have higher margin expansion of ~50 bps, given cost rationalisation and operating leverage, respectively.
Mid-cap IT services companies are expected to outperform large caps, with ~1.5–2.9% QoQ CC revenue growth in Q3. Ramp-downs in existing contracts are slowing and demand is stabilising, albeit discretionary spends remain muted. Persistent and Coforge are expected to lead growth with ~2.5-3% QoQ CC growth, supported by strong deal execution. Margins in mid-caps are likely to be soft as Coforge and Persistent could see some QoQ margin pressure due to the full-quarter impact of wage hikes.
Management commentary will be key this quarter, especially around CY26 client budgets, any early signs of discretionary spend revival, how GenAI deals are scaling, and the margin impact of AI-led deflation in traditional businesses.

We prefer TCS and LTIM among large caps, given its stable operating metrics and valuation comfort and, Persistent and KPIT in midcaps.

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