IT Q4 Earnings to Benefit from Rupee Fall Amid AI, Geopolitical Concerns
The Nifty IT index has underperformed, declining around 24% over the past three months, led by concerns over AI-induced disruptions and a prolonged growth recovery
Mumbai: IT services companies’ Q4 FY26 performance is likely to remain muted, but with a stable to improving year-on-year growth trajectory. A sharp depreciation of the Rupee against the US dollar means many companies may report double-digit year-on-year earnings growth, a report said. FY2027 guidance will be shaped by geopolitical uncertainty from the Iran war and increasing revenue deflation from GenAI-led programs, according to a fourth-quarter preview by Kotak Institutional Equities.
Tata Consultancy Services will report fourth-quarter results on April 9, followed by Wipro (April 16), HCL Technologies (April 21), and Infosys (April 23).
“The Indian IT services sector braces for another muted quarter in Q4 FY26E, with Tier-1 players’ growth projected at -1.1% to +0.9% quarter-on-quarter in constant currency, and mid-tier companies’ growth ranging from -1.8% to 3.4%, as macro uncertainty, ongoing geopolitical tensions, and cautious client decision-making on large deals amid war escalation risks temper near-term revenue traction,” said another preview by HDFC Securities.
“The rupee depreciation brings some respite to margins, but AI-led deflation concerns have triggered the recent multiple de-rating,” HDFC Securities added.
“The average cross-currency tailwind for the quarter will be around 35 basis points,” analysts said.
Management commentary on demand outlook, client budgets, AI-driven deflation, and delays in decision-making due to war conditions will be closely monitored. Margin guidance across companies is expected to remain stable, supported by currency tailwinds and peak utilisation levels, analysts said.
The Nifty IT index has underperformed, declining around 24% over the past three months, led by concerns over AI-induced disruptions and a prolonged growth recovery.
“Stocks have corrected 19–39% in the past two months. At the same time, macro headwinds pose another challenge for the sector, in addition to GenAI risks. The current stock prices of TCS and Tech Mahindra reflect low growth expectations,” the Kotak preview report said.
“The current one-year forward sector valuation is in line with the pre-COVID 10-year average, indicating limited downside. The rupee depreciation will provide a cushion to margins,” HDFC Securities said.
The sector’s growth recovery now hinges on execution capability, as new deals are mostly outcome-driven, pricing is agent-augmented, and renewals come at discounts. Valuations have reset to pre-COVID levels and turned attractive after the correction, analysts noted.
“The quarter benefits from the absence of furloughs, particularly in BFSI and retail, although this is partly offset by fewer working days. The financial services vertical is likely to lead sequential growth. We expect TCS to lead revenue growth among Tier-1 companies, while Persistent will lead among mid-tier companies,” said Kotak Institutional Equities.
On FY27 guidance, Kotak Institutional Equities said: “Elevated geopolitical risk from the Iran war adds uncertainty to global macro conditions and enterprise spending visibility. Additionally, GenAI-driven productivity programs are increasingly deflationary in nature. These factors are likely to cap headline growth guidance despite a reasonable deal pipeline.”
Analysts expect some de-escalation in geopolitical conditions, while a prolonged or intensifying conflict would pose downside risks to demand assumptions.
Hedging of currency risks by IT companies may result in variations in quarterly numbers, Kotak analysts said.
“Mid-tier IT companies have largely locked in their FY2027 profit and loss through hedging, with hedge rates typically in the ₹89–91 per US dollar range. As a result, currency benefits are unlikely to fully flow through to net profit for several mid-cap companies, even as reported EBIT margins improve, creating a divergence between operating performance and bottom-line growth in FY2027,” Kotak Institutional Equities said.
“LTIMindtree has the highest hedge book, with outstanding hedges of USD 4.37 billion at an average rate of ₹91.29 as of the December 2025 quarter. Coforge, Persistent, Mphasis, and Hexaware have hedge coverage extending up to 12 months, with hedge quantum typically ranging between 50% and 90% of expected net cash inflows,” said Kotak analysts.
