IT Q2 Result Preview— HDFC Securities Maintains Cautiously Optimistic View; Upgrades Infosys, HCLTech To 'Buy'

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HDFC Securities Institutional Equities

The IT index is down 13% in the last three months triggered by the H1B visa fee hike and fear of further tightening on outsourcing by the Trump administration.

The tariff related uncertainty is gradually subsiding, with some improvement in the deal activity, the demand deceleration has been lower vs earlier anticipated.

We have cut our FY26/27E revenue estimates by ~1%, led by soft H1; however, we have factored better exit for FY26E. Growth for engineering research and development companies is expected to bottom out in FY26E, led by improved deal activity.

We project revenue growth for the Indian IT sector at 2.8% for FY26E, lower vs FY25. We cut our EPS estimates by 1.0/1.2% for FY26/27E, and cut multiples for TCS/Wipro, and roll over target prices to Sep-27E EPS.

The valuations for tier-1 IT companies appear reasonable (upgrade Infosys and HCLTech to Buy from Add), while mid-tier valuations continue to be elevated.

The IT sector valuation at 21.7x is ~14% below its five years average (25.4x) and ~2% above the 10 years average (21.2x).

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