The demand environment remains largely unchanged since Q1, as clients continue to exercise caution on discretionary spending. Key developments during the quarter included TCS layoffs, a steep $100,000 fee hike in H1-B visa and 25% outsourcing tax proposed by President Trump.
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Systematix Report
We expect prolonged uncertainty to cap FY26E growth and push recovery to FY27E. NIFTY IT index is down ~20% YTD on President Trump's reciprocal tariffs, with Tier-1 valuations now looking reasonable, albeit demand visibility remains weak.
NIFTY IT index trades at 24 times last twelve months PE—17% below its five-year average and in line with its 10-year average.
We remain positive on TCS (21x 1-year forward PE), given its strong order book, resilient margins, and robust return ratios.
We also prefer Blackstonebacked R Systems as a differentiated digital engineering play with synergies from the Novigo acquisition.
We have retained our target prices for TCS, Infosys, Wipro, HCLTech, Tech Mahindra, Sonata Software, and R Systems.
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