IT Q2 Preview: Large-cap firms seen posting weakest growth in three years; midcaps may outperform

Indian IT firms may face weakest Q2FY27 growth in 3 years, with demand status quo. Midcaps may outpace large-caps, Infosys guidance cut expected.

Large-cap Indian IT companies are expected to report their weakest quarterly growth in three years in Q2FY27, with demand conditions largely remaining in a "status quo" state. According to the CNBC-TV18 poll, demand has neither deteriorated significantly nor shown tangible signs of recovery since Q1FY27.

The CNBC-TV18 poll estimates sequential constant-currency (CC) revenue growth of 0.5% for TCS, 1.4% for Infosys, a 0.9% decline for Wipro, 2.5% for HCL Technologies and 1.5% for Tech Mahindra.

On an organic basis, growth is estimated at 0.5% for TCS, 0.9% for Infosys, -1.6% for Wipro, 1.5% for HCL Technologies and 1.5% for Tech Mahindra.

Midcaps expected to outpace large-cap peers

Mid-tier IT vendors are expected to continue outpacing their large-cap peers, supported by market-share gains in specific verticals and the ramp-up of large deals.

The CNBC-TV18 poll estimates Q2FY27 sequential CC revenue growth of 6.7% for Persistent Systems, 3% for Mphasis and 12.2% for Coforge. Organic growth is estimated at 6.7%, 2.5% and 4%, respectively.

Persistent Systems' growth is expected to be supported by the ramp-up of a US$650 million-plus mega-deal, while Coforge is expected to see 3.5%-4.5% organic QoQ CC growth, supported by broad-based vertical execution.

Acquisitions to provide additional growth

Acquisitions are also expected to contribute to reported growth for several IT companies, according to Kotak estimates.

Coforge is expected to get around 820 basis points of inorganic contribution from Encora. HCL Technologies could see a 110-basis-point boost from the HPE Telco Solutions and Jaspersoft acquisitions, while Wipro could get around 80 basis points from Mindsprint and AlphaNet.

Hexaware is expected to see around 80 basis points of contribution from the CPS contract acquisition. Infosys could get around 50 basis points of full-quarter contribution from Optimum Healthcare, while Mphasis is expected to get around 50 basis points from Red Oak.

Infosys guidance in focus

Infosys is expected to cut its FY27 revenue growth guidance, according to the estimates provided. The company could lower its constant-currency revenue growth guidance to 1%-2% or 1.5%-2.5%, from the existing 1.5%-3% range.

The expected guidance cut is attributed to a ramp-down by a European automotive client and slower volume conversion.

HCL Technologies may keep organic outlook broadly unchanged

HCL Technologies is expected to keep its organic growth outlook broadly unchanged.

Its reported revenue growth guidance could be revised upwards to 3%-4% from 1%-4%, reflecting an estimated 100-basis-point contribution from the Jaspersoft and HPE Telco Solutions acquisitions.

On an organic constant-currency basis, the guidance is expected at 2%-3%, with a 2.5% midpoint. This is broadly unchanged from the earlier 1%-4% organic range in terms of the midpoint, although the expected range is narrower.

Wipro outlook

Wipro is expected to guide for Q3FY27 constant-currency growth of -2% to 0%, or an alternative range of -1.5% to +0.5%.

Accenture provides AI-related demand signal

Accenture's recent results and guidance had a positive impact on global IT stocks, with the company guiding for 3%-6% growth.

Accenture CEO Julie Sweet said: "We continue to believe the opportunities related to AI are greater than the impact of AI-related efficiencies in our business, and we expect that to continue as AI enables enterprises to do much more."

For Indian IT companies, the contribution from AI-related work will therefore remain an important area to watch during the Q2FY27 results season.