Sector watch: IT stocks to begin releasing Q4 FY26 earnings soon; what to expect and look forward to for FY27

Amid the widespread pessimism surrounding the markets, IT stocks have shown strong resilience and rallied over 2% on Thursday, April 2, recouping all the intraday losses.

The rally in IT stocks is crucially ahead of Q4 earnings season. The focus is now shifting towards Q4FY26 earnings, as major IT companies like TCS, Infosys, and others begin reporting their numbers next week.

The earnings will remain under a focused lens, especially considering the geopolitical turmoil witnessed in the last month.

The IT sector, in particular, has faced many structural headwinds for the earnings, including layoffs, AI advancements, currency fluctuations and price deflation.

Bookings and TCV growth

IT sector bookings are a crucial metric for assessing industries as they provide a growth trajectory for the upcoming quarters.

After the enterprise-level adoption of AI, there are concerns that the bookings and contract wins could see declines in IT companies.

However, early cues from Accenture results suggest that the price deflation and slowdown may be further than feared.

Accenture Plc reported 11% YoY growth in bookings at a record value of $22 billion. This offers hopes for better-than-expected bookings value for Indian IT companies as well. Though the growth may remain uneven across different categories and geographies.

Moderate topline growth

Analyst and market experts believe the topline for IT companies could remain soft with 0% to 1.5% constant currency growth sequentially, as furloughs and deferrals could act as headwinds.

Category-wise, the BFSI, Healthcare and Manufacturing (Automobile) could perform better than expected.

Tier 2 companies like Persistent Systems, LTM, and Coforge could continue to outperform their large-cap peers in the topline growth as well for the quarter.

The currency depreciation will play a major role in cushioning the topline growth, as it could vary for different verticals.

Midcap and smallcap IT names to outperform

The trend that was visible for the past few quarters could extend into the fourth quarter as well.

Mid- and small-cap companies could post strong topline upwards growth at 3% QoQ, navigating through the challenges and risks posed by mass AI adoption.

However, few sector experts believe it is too early to assess the impact of AI adoption on price deflation and contract revision.

Oracle Financial Services Software recently announced a multi-million-dollar deal with a US-headquartered global bank, which boosted investor sentiment amid the gloomy outlook for the sector.

Management commentary and outlook in focus

Markets will likely focus more on management commentary for FY27 and outlook beyond Q1 and Q2.

The revenue projections are expected to be moderated owing to geopolitical turmoil, as client spending could remain under pressure in the region.

Additionally, commentary on verticals like travel and logistics will be the core focus area amid the ongoing conflict.

The fourth quarter of FY26 (Q4FY26) also witnessed AI advancement at a massive scale, enough for IT companies to think at a higher level altogether on how to protect their growth engines in the aftermath of AI.