Persistent Systems, Coforge, TCS: IT stocks rally in trade, NIFTY IT index up 2%; what lies ahead?

The headline indices, SENSEX and NIFTY50, too, were trading in the green on hopes that President Donald Trump could consider some tariff relief for Canada and Mexico.

United States Secretary of Commerce Howard Lutnick on Tuesday said that the President is going to "figure out" what would involve reducing some of the 25% tariffs on imports from Canada and Mexico.

At 10:21 AM, the NIFTY IT index was trading 1.92% higher at 37,992 levels. All the 10 constituents of the index were trading in the green.

Q3 FY25 Results Review

JM Financial Research, in its Q3 IT services review report, said that large-cap companies (top-6) grew 0%-3.8% in constant currency (CC) terms on a sequential basis during the December quarter. Barring HCLTech, others met or exceeded expectations.

"Mid-cap outpaced larger peers again with 0.2%-8.4% CC QoQ growth, led by Coforge. Auto ER&D slowed down, albeit less than anticipated. Wipro/Tech Mahindra among large caps and Persistent Systems among mid-caps did better on margins. Deal wins performance was mixed. TCS, LTIM, and TECHM (on a low base) did well while other large-cap peers reported flat to negative growth," it added.

ER&D stands for engineering research and development.

What lies ahead?

Most players echoed cautious optimism in their 3Q commentary. They cited improvement in short-duration deals and continued discretionary spending in BFS. TCS indicated a reduction in deal decision cycles (for USD 20mn+ TCV deals). HCL reported 23%+ YoY growth in Annual Contract Value (ACV).

Wipro highlighted improved traction in USD 1-10 million deals. Part of the optimism was predicated on reducing uncertainty as the new US administration took office. Anything but that has happened since. Tariffs and counter-tariffs have infused more uncertainty. Inflation and rate cut trajectories have worsened, the report added.

"Our recent interactions with IT Services players gave us mixed signals. Few are maintaining their 3Q view still, especially on BFS. We also picked up instances of pause in large programs by US banks. That, if it expands, does not bode well," analysts at JM Financial said.

The report added that consensus estimates show growth acceleration in FY26 across large-cap IT companies. However, the pause in discretionary, especially in BFS, could put these estimates at risk. The recent correction in the sector (NSE-IT down 8% MTD) seems to reflect that.

"Though we have left our estimates unchanged for now, we will stick to stocks that offer earning resilience and valuation buffer. TCS trades at a 9% discount to its 5-year mean. Infosys is trading at par," JM Financial said in its note dated February 26.