BNP Paribas expects India's IT sector to report another soft quarter, with Infosys and HCLTech likely to lower growth guidance. Analyst Kumar Rakesh said, "What usually used to be at least one to two percentage points of sequential growth... would be sub-1% growth for most of the largecap IT services companies."
BNP Paribas expects India's IT sector to report another soft quarter, with Infosys and HCLTech likely to lower growth guidance as organic demand remains weak. The brokerage says Tech Mahindra continues to stand out on earnings growth and valuations despite a challenging industry backdrop. What should investors watch in the earnings season?
By Alpha Desk
India's IT services companies are likely to report another muted quarter, with largecap firms expected to deliver less than 1% organic sequential revenue growth and revise their outlook for the rest of the financial year 2027, according to BNP Paribas.
The brokerage expects Infosys and HCLTech to lower their organic growth guidance, while Tech Mahindra is seen continuing to outperform peers.
Kumar Rakesh, Analyst-IT & Auto at BNP Paribas, said the September quarter has failed to deliver the seasonal pickup in volumes that the industry typically sees. As companies prepare to announce results, he expects guidance to be recalibrated to reflect softer demand conditions.
"What usually used to be at least one to two percentage points of sequential growth... would be sub-1% growth for most of the largecap IT services companies," Rakesh said, adding that the softness seen in the previous quarter has continued into the September quarter.
He believes the absence of the usual seasonal recovery means companies that provide annual guidance, particularly Infosys and HCLTech, will have to reassess their outlook while narrowing their guidance bands as the financial year progresses.
For Infosys, BNP Paribas expects the midpoint of 2026-27 organic growth guidance to be lowered by around 25 basis points.
"For Infosys, we are expecting the midpoint guidance for organic growth to be cut by about 25 basis points," Rakesh said.
For HCLTech, the brokerage expects reported guidance to include contributions from recent acquisitions. However, on an organic basis, the midpoint guidance could be reduced by about one percentage point.
Beyond earnings, BNP Paribas believes IT stocks remain highly sensitive to even small changes in growth expectations. Rakesh said a 50-100 basis point shift in expected growth can result in a significant change in valuations.
"There's almost a 20 percentage point swing in valuation just on a minor marginal shift in the growth expectation," he said.
Based on its valuation framework, BNP Paribas expects the Nifty IT index to trade in a broad range of 26,000 to 31,000. The lower end reflects expectations of low single-digit growth, while the upper end factors in a partial cyclical recovery rather than a full rebound in demand.
The brokerage noted that the sector has faced multiple macro challenges over the past few years, including inflation concerns in the US, recession fears, tariffs and geopolitical tensions, limiting expectations of a sustained recovery.
Despite the cautious sector outlook, BNP Paribas continues to favour Tech Mahindra. Rakesh expects the company to deliver mid-single-digit revenue growth, supported by improvements across verticals, geographies, service lines and long-term contract value.
He also argued that Tech Mahindra's valuation should be compared with the multiples that largecap IT companies historically commanded when they were growing at similar rates, rather than with peers currently posting limited organic growth. On that basis, BNP Paribas believes the stock still has room for further upside.