India’s top IT services companies saw a shift in brokerage sentiment following their June-quarter earnings, amid mounting concerns over growth, muted guidance, and signs of restructuring, most notably at Tata Consultancy Services (TCS), which is reportedly planning to cut 2% of its workforce, or around 12,000 jobs in FY2026.
Across five major IT firms, namely TCS, Infosys, HCL Technologies, Wipro, and Tech Mahindra, analysts made major revisions to their calls on the stocks, data from Bloomberg shows.
HCL Technologies saw the most positive shift, with “Buy” calls rising from 16 to 23 and “Sell” ratings dropping from 11 to 7, the strongest improvement among its peers. However, global brokerage firm J.P. Morgan downgraded HCL from Overweight to Neutral on July 15, citing concerns around AI deflation causing margin erosion.
The brokerage noted that while growth visibility remains strong, the cost of delivering that growth is rising as clients expect a lower cost of doing business. Margin guidance for FY26 was cut by 100 bps, and J.P. Morgan warned of a permanently lowered margin band, driven in part by GenAI-related discounts and investments that lack immediate payoff
Wipro, on the other hand, saw a shift in sentiment. “Buy” calls held steady at 9, but “Sell” recommendations rose from 19 to 21 while “Hold” calls declined to 16. Wipro now carries the highest number of “Sell” ratings among the five.
TCS, though still a market leader, saw a moderation in sentiment. “Buy” ratings dropped from 36 to 32, with “Hold” calls increasing from 11 to 15. “Sell” calls increased to 4. Moneycontrol had reported on July 27 that the company plans to reduce its workforce by about 2% over the next fiscal year. The reductions will focus on mid- and senior-level employees, as well as entry-level staff who remain unallocated. CEO K Krithivasan clarified that the cuts are not driven by AI-led efficiency gains, but by structural deployment gaps.
Infosys remained neutral in sentiment terms, with 34 “Buy,” 13 “Hold,” and 2 “Sell” calls before and after earnings. Meanwhile, Tech Mahindra saw a rebound in views, with “Buy” calls climbing from 21 to 25 and “Sell” ratings falling from 17 to 13.
What the market says
Market participants remain cautious. Narendra Solanki, Head Fundamental Research-Investment Services, Anand Rathi Shares and Stock Brokers said that while the market had priced in flat earnings, the lack of forward visibility was disappointing. “Management commentary across the board highlighted unpredictability and weak near-term demand trends. That remains a key concern,” he said. Solanki added that while hiring trends have already normalized, no meaningful recovery is likely before the fourth quarter, and even that remains tentative.
Fisdom’s Head of Research Nirav Karkera echoed the downbeat view, citing macroeconomic headwinds from the West, which is a critical market for Indian IT exports. “We expect the current challenges to persist for at least a couple more quarters,” he said in a conversation with Moneycontrol. “Job cuts, like those at TCS, aren’t just about AI, they’re part of a broader cost realignment strategy. Companies are looking at all expense lines to protect margins," he said.
Karkera added that mid-cap IT players have generally shown stronger growth and better positioning relative to large-caps in this environment, though pressure is building across the board. “This is a phase of operational restructuring, not a growth cycle. Everyone’s bracing for volatility.”
While large-cap IT stocks are trading in the 20–22x forward PE range, with TCS at 21.64x, Infosys at 21.52x, and HCL Tech at 22.29x, mid-caps like Persistent Systems (42.5x) and Coforge (36.9x) are commanding steep premiums. “There’s a clear gap between large-caps and mid-caps, but in many cases, that’s backed by stronger growth,” Sunny Agrawal, Head of Fundamental Research at SBI Securities previously told Moneycontrol.
Still, Agrawal cautioned that such valuations are sustainable only if performance holds. “Valuation is a byproduct of growth. If that slows or stalls, the premium disappears. With GenAI and structural changes reshaping the industry, this is a year of transition. Until there’s more clarity, IT may continue to underperform.”
On sentiment impact post the TCS news, Solanki noted that these developments (TCS) are definitely not positive. However, he doesn't expect to see a sharp further deterioration in hiring trends. Companies have already been cautious and hiring has been historically low recently, especially compared to the post-COVID period when there was aggressive expansion due to high demand, he noted.
"What we’re seeing now is more of a normalization process. I don’t think we’re looking at a disruptive downtrend beyond that. But again, the next quarter will be crucial in confirming this," Solanki said adding that given the weight of the IT sector in the broader index, any weakness here does have a material impact on index-level earnings and momentum. Until we see improved visibility and stronger commentary from management, the sector will likely remain under pressure.
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