Early cues from Q1 IT results: Demand environment bottoming out; expect better H2FY27 and more

IT stocks are buzzing in Monday’s trading session as investor sentiment remains bullish on the IT sector after the early set of Q1 earnings. The benchmark IT index is up 4% on Monday, largely lifted by the index heavyweight TCS, whose shares are soaring over 6% higher in the afternoon. The company announced signing a multi-million dollar deal with ABB, which boosted the investor sentiment. Apart from the company-specific developments. The post-earnings commentary by key IT companies seemed to have cooled down the selling pressure in IT stocks. Here are some key takeaways from recent Q1FY27 IT sector earnings that boosted investor confidence.

LTM expects better H2FY27

LTM posted stable earnings growth during Q1FY27 at 0.3% sequential growth in revenue as order inflow remained muted at -0.3% QoQ at $1.68 billion. The topline growth remained higher at 6.4% on a constant currency basis and 6.1% on a USD basis. CEO and MD Venu Lambu said, “We are confident that our growth momentum will continue to build through the year.” In addition, the company, during the post-earnings conference call, said the momentum to visibility would accelerate in Q2 and move strongly in H2FY27. Moreover, the company also expects to surpass the 6% growth rate achieved in FY26. Following the buoyant earnings outlook, the shares have jumped nearly 10% in two days.

TCS remains cautiously optimistic

The country’s largest IT player, Tata Consultancy Services, sounded more confident than feared for the future of the IT industry. The company expects, despite muted growth in order inflow in the quarter gone by, the company expects the demand environment to “bottom out” soon. The demand environment in the BFSI (Banking & Financial Services Vertical) is showing strong resilience and stabilisation in growth, which the management of LTM also highlighted during the earnings call. The AI-segment revenue remains a key driver for growth as the segment recorded a 13.6% annualised growth in pipeline for the company. The management said that AI is now entering the enterprise and execution stage and is no longer a proof of concept.

Margins cushioned by forex benefit

During Q1, the majority of the IT companies released wage hikes, which were expected to take a hit on margins for the quarter, amid muted topline growth. However, a ~3% favourable currency movement during the quarter cushioned the margins. The adverse impact of new labour codes continued to compress margins for IT companies, which was minimised by currency depreciation during the quarter. TCS posted a 24% operating margin vs 25.3% in the previous quarter, while LTM posted margin expansion at 15.6% EBIT margin, up 60bps sequentially.

Hrinig is back

The early trends from Q1FY27 results for IT companies suggest that hiring in key verticals is accelerating. TCS hired 9,279 employees in the quarter ended June 2026, up from 2000 employees in the previous quarter. Meanwhile, the attrition rate for LTM Ltd remained largely unchanged at 13.3% for the quarter as compared to the previous quarter. At the broad level, the industry trends indicate that hiring is resuming in full swing in the IT companies, with more visibility on the impact of AI and its scalability and serviceability.

In summary

The early trends and cues from Q1FY27 earnings for the IT sector indicate that the sector is showing signs of stability, with the demand environment improving for key segments. Revival in discretionary spending in the developing nations, especially in the US are encouraging sign for the IT sector. Aggressive integration of AI at the enterprise level has brought a new set of opportunities for IT companies, which has helped garner new deals and contracts in the space. The IT index has fallen by over 23% in 2026 on a YTD basis, attracting value investors as they gauge the early cues from IT results.