TCS, HCL Tech deliver steady Q3 results: Is a recovery already factored in?

TCS and HCL post steady Q3, signaling sector may be past its toughest phase

• TCS and HCL Tech posted stable Q3 results, meeting Street expectations
• HCL Tech raised FY26 revenue guidance after strong deal wins and AI-led growth
• Growth recovery remains uneven due to one-off costs and market weakness

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Indian IT bellweathers - TCS and HCL Technologies kicked off the December quarter earnings season on a broadly stable note, with results largely in-line with Street expectations. Brokerages believe that this signals that the sector may be moving past its most challenging phase, arguing stabilising demand, steady deal momentum, and early traction of AI-led projects as key positives. However, they cautioned uneven growth visibility could keep sector's sharp re-rating limited in the medium term.

What worked in Q3: execution and deal momentum

HCL Tech stood out on execution. The company reported better-than-expected revenue growth of 4.2 percent QoQ in constant currency terms, supported by net new deal wins of nearly $3 billion—up 44 percent year-on-year. The strong performance prompted HCL Tech to raise its FY26 revenue growth guidance, a move highlighted by brokerages such as Nomura and Emkay as a significant positive.

TCS, meanwhile, delivered results largely in line with expectations. Revenue grew 0.8 percent sequentially in cc terms, marginally ahead of consensus, while margins held firm at 25.2 percent. Deal momentum remained steady, with total contract value of wins at $9.3 billion and a book-to-bill ratio of 1.24x, helped by a large BFSI deal.

Across both companies, brokerages highlighted improving demand for short-cycle, return-on-investment-driven projects, particularly in cloud modernisation, automation and AI-led transformation. Goldman Sachs particularly noted that even though growth remains uneven, the overall demand environment appears “stable to improving” for the Indian IT services.

AI spending emerges as a support pillar

Amid last year’s Rs 75,000 crore FII selloff in Indian IT, market attention has been on AI-related activity. Both TCS and HCL Tech showed meaningful traction.

Nomura, in its note on HCL Tech, said the company reported AI-related revenues of about $146 million that accounted for nearly 3.8 percent of total revenue. AI-related revenue grew by around 20 percent sequentially led by demand for setting up and managing AI infra services.

For TCS, Emkay Global analysts highlighted that the improvement in demand through the Q2 and Q3 has been supported by a steady rise in short-cycle, return-driven AI projects across industries, with several projects now moving beyond pilot stages.

What weighed: Muted growth and one-offs

Despite the positives, growth recovery remains patchy. For HCL Tech, Nomura said reported profit was weighed down by a one-off provision of about Rs 956 crore linked to higher gratuity and leave encashment under the new labour law, while margins in the core services business was largely flat due to restructuring costs and salary hikes

For TCS, brokerages including Nomura and Emkay said earnings were hit by one-off costs related to labour code provisioning, restructuring expenses and legal charges. They also flagged seasonal weakness in key markets such as North America and the UK, and softer growth in BFSI during the quarter.

IT stocks have staged a strong recovery over the past three months. TCS gained around 11 percent, while HCL Tech rose nearly 17 percent during the October–December period, reversing sharp losses seen in the previous quarter.

Q3 results confirm that TCS and HCL Tech are navigating the downturn with disciplined execution, steady deal wins and early AI traction. However, until growth becomes broader-based and more durable, brokerages believe upside from current valuations is likely to remain measured from here on.