The IT sector's Q1 FY27 performance was largely in line with expectations, with growth remaining muted amid a soft demand environment and continued moderation in discretionary spending. According to Motilal Oswal Financial Services, the revenue growth was led by Tier-2 pack IT services companies, with IT firms reporting median revenue growth of 1.2% Q-o-Q CC versus 0.8%/1.6%/1.5%/-1.1% in Q4FY26/Q3FY26/Q2FY26/Q1FY26 respectively. Tier-1 players grew 0.4% Q-o-Q CC, while Tier-2 players outperformed with 1.8% growth. Among individual performers, Tata Technologies delivered 4.3% growth, Mphasis recorded 2.1%, and Coforge achieved remarkable 22.3% QoQ CC growth, including 1.1% organic growth. On the weaker side, Wipro declined 1.2%, HCLT fell 0.5%, and KPIT dropped 3.6% Q-o-Q CC. As per MOFSL, the outperformance of Tier-2 players over larger peers and continued market share gains remained a key theme, with TCS and LTM remaining broadly flat QoQ and Infosys underperforming with 1% Q-o-Q CC growth despite Q1 being a seasonally strong quarter.
On the margins side, MOFSL reported that Tier-1 Ebit margins expanded 20 bps Y-o-Y to 20%, while Tier-2 margins improved 10 bps to 14.5%. Margin management initiatives, higher utilisation, increased offshoring, a leaner pyramid and, in some cases, currency tailwinds supported profitability. However, continued investments in AI, large-deal ramp-ups, partnerships and lateral hiring offset part of these gains. Equirus Securities noted that the top-6 large-cap companies registered CC US$ sales growth higher than or in line with expectations, with performance better than expected for most of the top-6 large caps aided by currency depreciation and benign supply-side issues. As per Sandeep Shah, director - IT at Equirus Securities, on Ebitm front, performance was better than expected for most of the top-6 large caps, aided by currency depreciation and benign supply-side issues.
The deal landscape saw increasing competition between Tier-1 and Tier-2 players for the same opportunities, resulting in a more divergent deal environment. Among Tier-1 firms, HCL Tech and Tech Mahindra reported ~33% Y-o-Y growth in TCV, while Wipro's TCV declined ~32% Y-o-Y. Among Tier-2 players, Persistent and Coforge delivered ~120% and 36% Y-o-Y TCV growth respectively, while Mphasis and KPIT declined ~39% and ~13% respectively. As reported by Sandeep Shah, TCV of deal wins remained robust on a Q-o-Q basis across most of the top 6 large-cap firms, but the nature of deal wins largely skewed towards vendor consolidation rather than major pickup in discretionary spend. The winners and losers were distributed across both segments, with TCV growth remaining uneven across players.
Guidance was mixed in terms of revenue growth, with some players expecting strong FY27 growth while analysts see a guidance cut from Infosys. Most management expect margins to remain range-bound through FY27. Geojit Investments noted that sector valuations have moderated to ~18x one-year forward P/E following the recent correction, below historical averages, positioning the sector as an attractive value-buy opportunity with a favourable risk-reward profile for long-term investors. On wage hikes, TCS implemented hikes in Q1FY27, while Tata Elxsi and Tata Tech are scheduled to implement them in Q2FY27, with other players yet to announce their timelines. According to Vinod Nair, head of research at Geojit Investments, earnings were supported by favourable currency movements and sentiment improved on easing geopolitical concerns, sustained FII inflows and rising confidence in AI-driven opportunities for the Indian IT sector.
