IDBI Capital expects a subdued second quarter for the Indian IT sector, with large-cap revenue growth estimated at roughly 1%. Amidst macroeconomic uncertainty and sluggish deal conversions, the brokerage highlights TCS and HCLTech as preferred stocks, citing potential margin improvements despite broader sector headwinds.
The Indian IT services sector is preparing for its second-quarter earnings, with Tata Consultancy Services (TCS) scheduled to lead the pack on October 8, 2026. Ahead of these results, a report from IDBI Capital suggests a lackluster quarter, projecting that dollar revenue growth for large-cap entities will likely hover around 1% sequentially.
Margin Outlook for Large-Cap Leaders
While top-line growth faces challenges due to macroeconomic uncertainty and slower deal conversion, the brokerage expects some relief in profit margins. This expected improvement is attributed to a weaker rupee and the mitigation of recent wage-hike pressures, which had previously weighed on profitability.
Within the large-cap space, IDBI Capital views HCLTech as a standout for sequential operating momentum. The brokerage forecasts a 3% quarter-on-quarter increase in dollar revenue for HCLTech, with operating margins projected to expand by 74 basis points to 17.6%. This is expected to be supported by contributions from the HPE telecom business and Jaspersoft integration. Tata Consultancy Services also remains a primary focus, with the report projecting a 0.5% sequential rise in dollar revenue. The brokerage anticipates that TCS will see its EBIT margins widen by 44 basis points to 24.4% as its AI-integrated services help stabilize demand.
Sector Risks and Mid-Cap Scrutiny
Despite the specific focus on select large-caps, the broader IT landscape remains cautious. IDBI Capital notes that Infosys is facing ongoing pricing pressures, while Wipro continues to work through internal growth hurdles. The brokerage suggests that investors may keep a close watch on how these companies navigate the competitive landscape and discretionary spending trends, which remain under pressure from geopolitical volatility and global macro challenges.
For mid-tier firms, the outlook involves a different set of dynamics. While companies like Coforge and Sonata Software are expected to report higher headline growth compared to large-caps, the brokerage urges scrutiny of the quality of this expansion. Often, growth figures in this segment are significantly bolstered by recent acquisitions, making it essential for investors to track organic sustainability rather than just inorganic revenue contributions.
Looking ahead, the market reaction will likely depend on management commentary regarding future demand and the impact of AI on contract economics. Investors may monitor whether the margin expansion predicted for large-caps materializes in the upcoming earnings reports and whether mid-tier companies can sustain organic growth without relying heavily on M&A activity.