IT Sector Q3 Preview: Seasonal Weakness Eases As Deal Momentum Builds
India’s information technology companies are expected to report a modest but resilient third-quarter performance, with analysts pointing to easing deal delays and steady deal wins offsetting the usual seasonal slowdown.
The December quarter is typically the weakest for IT services firms due to fewer billing days, but analysts say growth momentum this year looks stronger than in previous cycles. Deal ramp-ups, improved conversion of pipelines, and fewer project deferrals are expected to support sequential growth, even as discretionary spending remains under pressure and geopolitical risks continue to weigh on sentiment.
Deal Momentum and Seasonal Slowdown
While demand recovery remains uneven across geographies and verticals, brokerages expect management commentary to turn more constructive during the December quarter. Focus areas are likely to include deal pipelines, artificial intelligence-led engagements, and budget visibility for calendar year 2026. Margins may see support from foreign exchange movements, partly offset by furloughs in the quarter.
Analysts’ Expectations
Here’s what analysts are expecting from the IT sector during Q3 results announcements:
- Nuvama: December quarter expected to remain stable despite seasonal headwinds. Most companies likely to post muted but positive sequential growth, supported by deal ramp-ups.
- Jefferies: Aggregate revenues for its coverage expected to moderate to 0.8% year-on-year in constant currency terms in Q3. HCLTech and LTIMindtree expected to grow faster among large firms, while Coforge and Sagility may outperform among mid-sized peers.
- UBS: December quarter likely to remain modest for IT services companies. Commentary from Accenture does not yet indicate a recovery in discretionary spending. Sector outlook remains cautious, though early signs of improvement are emerging.
- Investec: December quarter is seasonally soft, but deal delays and deferrals have eased. Stronger deal wins expected to support growth momentum compared with prior years.
Stocks to Watch
Some of the key stocks to watch in the IT sector include Infosys, HCLTech, LTIMindtree, and TCS. These companies are expected to report their Q3 results in the coming weeks, and their performance will be closely watched by investors and analysts.
Investment Strategy
For investors looking to invest in the IT sector, it’s essential to have a long-term perspective and a well-diversified portfolio. The sector is expected to continue to grow, driven by increasing demand for digital transformation and technology services. However, investors should also be aware of the potential risks and challenges facing the sector, including geopolitical risks and competition from other industries.
Investors can consider investing in IT sector ETFs or mutual funds, which provide a diversified portfolio of IT stocks. They can also consider investing in individual stocks, such as those mentioned above, but should do their own research and analysis before making any investment decisions.
Conclusion
In conclusion, the IT sector is expected to report a modest but resilient third-quarter performance, driven by easing deal delays and steady deal wins. While the sector faces challenges, including geopolitical risks and competition from other industries, it is expected to continue to grow, driven by increasing demand for digital transformation and technology services. Investors should have a long-term perspective and a well-diversified portfolio to navigate the potential risks and challenges facing the sector.