While the Nifty has fallen 10% since March, the IT index has remained largely flat, suggesting that a significant portion of the pessimism may already be priced in.
The quarter has been dominated by multiple headwinds including AI-related disruption fears, concerns around IT industry obsolescence, geopolitical tensions in the Middle East, and the second-order impact on discretionary spending, along with rupee depreciation.
While most sectors have seen EPS downgrades due to the conflict, the weaker rupee has led to EPS upgrades of 2-4% for the IT sector for FY27, and to a lesser extent for FY28.
The currency tailwind is helping offset the drag from weaker discretionary spending amid geopolitical uncertainty and potential AI-driven pricing pressures.
Consensus expectations still point to double-digit EPS growth for IT companies in FY27.
| Company | FY27 EPS (%) | FY28 EPS (%) |
|---|---|---|
| TCS | 13% | 6% |
| Infosys | 11% | 7% |
| HCLTech | 17% | 8% |
| Wipro | 5% | 6% |
| Tech M | 30% | 10% |
| LTIMindtree | 20% | 14% |
| Persistent | 30% | 19% |
| Coforge | 23% | 17% |
| Mphasis | 15% | 12% |
With the sector having sharply underperformed and valuations seeing significant PE compression, the key question is whether IT companies can guide their way out of the current pessimism.
Revenue growth for Q4FY26 and FY27 is likely to remain modest. However, the focus this quarter will be on margins and EPS growth, aided by rupee depreciation.
The Street expects a recovery to double-digit EPS growth in FY27, following low single-digit growth in FY26.
On the broader earnings front, sectors seeing the steepest FY27 downgrades include auto at -11%, cement at -12%, and oil and gas also witnessing double-digit cuts.
On the other hand, metals and IT have seen upgrades, according to Gautam Duggad of Motilal Oswal, speaking to CNBC-TV18.
In terms of valuations, the Nifty is currently trading at around 18x forward PE, a 15% discount to its long-term average of 20.5x, and well below the peak of 24x seen in September 2024.
