This is a tech story of three Indian giants, which delivered wavering quarterly results in an environment clouded with uncertainties. The largest, Tata Consultancy Services (TCS), witnessed the most modest performance. The Year-on-Year (YoY) growth in the second quarter of 2025-26 was subdued for both revenues and net profits. They were in low single digits, though ahead of market expectations. While HCL Technologies showed a double-digit growth in topline, the bottom line remained flat. Infosys “delivered the strongest bottom-line growth,” which was combined with quite a “solid topline expansion.”

The challenges facing the three seemed different, although they operate in the same software/IT space. TCS, for instance, is plagued with demand softness due to under-pressure global discretionary spends. Its one-time severance or restructuring costs due to recent, and possibly future, sackings can introduce volatility. The soft trajectory of the financials, though not spectacular, shows stability. According to a recent research report by Prabhudas Lilladher, the net profit was Rs 121 billion, which was slightly below estimates due to the one-off restructuring expenses of Rs 11.4 billion.

Although HCL boosted its topline, which was higher than the other two competitors, the plateau in profits indicates that margins are under pressure due to wage inflation, restructuring costs, shift in product and geography mixes, and intense competition. Revenue growth was led by engineering, R&D and AI (Artificial Intelligence) offerings. This is one of the few IT firms that entered the advanced AI area. However, as the top story (Our Take) on this page indicates, there are fears that the AI segment may be caught in a bubble.

Experts feel that Infosys’ revenue strengths lie in broad-based growth, which include large deals, and improved operational leverage. More importantly, chasing revenues has bolstered margins and profits, which were in double-digits in the quarter. However, the company needs to “sustain its margin gains even as it scales. Any reversal in vertical demand, or large deal slippages can hurt the momentum.” Globally, the IT ecosystem is in for a churn. Stock markets have already re-rated IT stocks over the past few months.

Let us consider the TCS stock, which traded just below Rs 3,000 after the second-quarter results. Despite the constraints, analysts estimate a future target price between Rs 3,500 and Rs 3,800, which implies an upside of 15-20 per cent. Motilal Oswal, a brokerage house, reiterated its ‘Buy’ rating, and noted, “Valuations are undemanding, and we reiterate our BUY rating with a target price of Rs 3,500.” Prabhudas Lilladher projected “a P/E (Price/Earning) of 23x to Sep27 EPS (Earnings Per Share) that translates to a target price of Rs 3,800.”

In the past 12 months, HCL’s stock has dropped by Rs 400 to below Rs 1,500, with a lowest point below Rs 1,400 in April 2025. It climbed thereafter but since July this year, the stock has shed more than Rs 200. The story of Infosys is similar: In the past 12 months, it lost more than Rs 500 to settle at below Rs 1,500 now. Its lowest point was below Rs 1,400 in April 2025, followed by an upside, and a downside since July this year. TCS is down by more than Rs 1,100, or almost 30 per cent in the past 12 months. The stock reached a high of almost Rs 4,500 in December 2024, and has since declined.

Since TCS is the bell weather stock for Indian IT, let us look at its performance in detail. Like its counterparts, the near-term risks stem from macro caution, subdued discretionary spending among clients, as they prioritise cost optimisation over transformation-led projects. Unlike some of the other IT majors, TCS faces margin pressure, and slow deal conversions. According to Motilal Oswal, “The demand environment remains constrained, and there is no change in client behaviour.” Elara Securities warns that elevated costs may persist due to “new skills and continued high attrition.”

Additionally, the company’s ambitious data centre plan, while promising, carries execution and capital risks. Analysts seek more clarity on the investment phasing, and expected returns. As the Motilal Oswal report stated, “We await clarity on the capital structure, capex schedule, and potential rentals. We do not model data centre revenue into our forecasts yet.” Globally, there is an ongoing data centre boom, which is driven by massive investments. In such a scenario, there is potential for future gains.

At present, TCS has announced a 1-GW data centre project, which marks a strategic adjacency play into digital infrastructure. Though capital intensive, it positions the company in a high-growth annuity business. Motilal Oswal’s report explains: “TCS plans to invest $5-7 billion over 5-7 years to develop 1-GW capacity; initial revenue (is) expected in 18-24 months. The data centre will serve hyper-scalers and government clients.” The amounts are massive, and the commissioning period is long. One is not sure how the lag effect will play out, especially given the data centre boom.

Despite the macro headwinds, TCS demonstrates resilient performance, and strong client trust. Total contract value remained robust at $10 billion, up 16.3 per cent YoY, which reflect healthy deal momentum across verticals. Prabhudas Lilladher’s report explains, “Deal wins of $10 billion included a $0.6 billion mega deal; excluding that, deal wins were slightly above the company’s $7-9 billion comfort range.” TCS’s AI-first strategy strengthens its long-term positioning. According to Prabhudas Lilladher: “TCS outlined its AI roadmap, focusing on human+AI delivery models, building 160k+ AI-skilled employees, and expanding infrastructure through strategic M&A.”

Looking ahead, TCS expects steady recovery through FY26 as client sentiment improves, and cost-optimisation deals stabilise. The management reiterated its 26-28 per cent EBIT (Earnings before Interest and Tax) margin aspiration, and continues to prioritise AI and digital modernisation. “We built in three per cent dollar growth for FY27E after a 0.9 per cent dip in FY26E. While demand remains challenging, TCS’s proactive AI investments and strong order book provide stability,” states the Elara Securities report.

Prabhudas Lilladher echoes similar sentiments: “We estimate dollar revenue and earnings CAGR (Compounded Annual Growth Rate) of 3.6 per cent and 9.4 per cent over FY25-FY28E.” TCS’s resilient margins, high book-to-bill ratio (1.3x), and dividend payouts signal financial strength despite cyclical headwinds. With large deal visibility, AI expansion, and gradual demand normalisation, analysts see it as a defensive long-term bet in IT services. In Q2-FY26, the company paid an interim dividend of Rs 11 per share.