The IT sector is expected to post mixed revenue growth in Q1, with tier-1 reporting muted CC revenue growth while mid-tier is expected to deliver strong growth. There is a huge cross-currency tailwind in the quarter which will result in strong USD growth QoQ. The companies will maintain their full-year FY26E guidance amid the ongoing global economic uncertainty.
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HDFC Securities Institutional Equities
The IT index is down 10% year-to-date but up ~3% in the last month. The quarter started with heightened uncertainty due to disruptions caused by the Trump administration’s reciprocal tariff measures, but the demand deceleration has been lower than expected. We have maintained our FY26/27E revenue estimates, factoring in a recovery in Q2/Q3 FY26E.
Growth for ER&D companies is also expected to soften, primarily due to a potential slowdown in the transportation vertical, particularly among global OEMs.
Growth dispersion across companies is likely to remain significant through FY26E. We project revenue growth for the Indian IT sector at 3.2% for FY26E, mirroring the pace seen in FY25.
We cut our EPS estimates by ~0.9%/0.2% for FY26/27E, keep multiples stable for most companies, and roll over target prices to June-27E. The valuations for tier-1 IT companies appear reasonable, while mid-tier valuations continue to be elevated.
The IT sector valuation at 25x is ~2% below the five year average (26x) but 19% above the 10Y average (21x).
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