Moneycontrol Pro Panorama | What do early results signal? Is the worst behind IT?

The good news is that IT's performance did not fall below expectations

Dear Reader,

As the two information technology (IT) biggies -- HCL Technologies (HCL) and Tata Consultancy Services (TCS) -- reported their Q3 FY26 earnings, the good news is that their performance did not fall below expectations as was the case in some earlier quarters. And, there were no nasty surprises that the Street could not fathom.

Indeed, the two stocks have been facing selling pressure immediately after results were announced giving little relief to investors in these stocks. HCL is down 16 percent and TCS down 24 percent over the last one year as weak investor sentiment followed US companies cutting back capital expenditure (capex), fear of weak order flows and IT companies retrenching thousands of employees. The steep fall in IT stock prices reflected the turbulence that the sector faced in 2025.

But Q3 FY26 results have brought a whiff of positivity. HCL, which most brokerages tout as the fastest growing large-cap IT firm, reported better-than-expected revenue growth with robust 43% year-on-year (yoy) and 17% sequential growth in order flows. As a result, it has upped the lower end of the revenue growth guidance 3-5 percent to 4-4.5 percent.

Likewise, TCS reported stable revenue and strong deals that sustained a healthy 1.2x book-to-bill ratio.

Importantly, as both companies maintain profitability, the structural rejig seen in the past few quarters seems logical. The need to become future fit drove harsh decisions. In spite of steep restructuring expense in FY26 for investing in its AI and go-to market strategy, HCL’s Q3 FY26 operating margins improved by 111 basis points sequentially (read here for detailed analysis). TCS, too maintained its profitability.

The big takeaway from management commentaries that could turn investors from being negative on the sector to cautiously optimistic is that there is confidence in revenue traction from the strategic shift to AI by these companies.

To be sure, traditional discretionary spends have slowed. But the need for companies to realign spends in Agentic AI, AI infrastructure, reskill employees with AI capabilities, employ fresh and relevant workforce, is now being slowly recognised by investors and stakeholders. For instance, HCL reportedly became the first Indian IT service company to call out its quarterly Advanced AI revenue, at $100 million, close to 3 percent of its total revenue.

The performance of these two companies in Q3 brings greater conviction in AI-related spends, and structural as well as operational changes continue to rock the stability of the IT sector. The results of Infosys Technologies -- to be announced on Wednesday -- will perhaps set a more positive trend. Analysts have forecast that the company may increase revenue growth guidance for FY26, if not maintain the earlier numbers.

That said, the persistent pricing pressures, geopolitical factors and the US-visa issues, along with news of layoffs and furloughs, can weigh down stock prices. But given the underperformance of this sector to broader markets and other sectoral indices, it may be time to look beyond the quarterly earnings noise.

Investing insights from our research team

TCS Q3 FY26 — Can the stock regain its lost glory anytime soon?

How will stocks react in the event of an El Niño?

HCL Tech Q3 FY26: Strong all-round performance

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