Why Is Goldman Sachs Cautious on Indian IT Stocks Ahead of Q2 Results?
Goldman Sachs has released its Q2FY26 preview for Indian IT services, highlighting margin expansion in select firms but warning of potential sector de-rating. While EBIT growth is projected at +6% YoY, growth visibility into FY26–27 remains weak. The brokerage has cut target prices for several large IT names while staying positive on select leaders like TCS.
Margins and Earnings Growth
The report notes that EBIT margins are expected to expand QoQ, with the biggest gains coming from HCL Technologies (+120bps) and Wipro (+90bps). However, earnings growth remains uneven across the sector. While Tech Mahindra is expected to post the strongest EBIT growth, both HCL and Wipro are likely to lag behind peers.
✅ Sector EBIT growth: +6% YoY
✅ Margin expansion: HCL +120bps, Wipro +90bps
📉 Weak links: HCL & Wipro on EBIT performance
Stock Ratings and Target Price Changes
Goldman Sachs has realigned its stance across the IT basket with multiple rating changes:
- ❌ Sell: Tech Mahindra (🎯 ₹1,380 vs ₹1,500), Wipro (🎯 ₹232 vs ₹254)
- ⚖️ Neutral: Infosys (🎯 ₹1,570 vs ₹1,660), HCL Tech (🎯 ₹1,530 vs ₹1,670), LTIMindtree (🎯 ₹4,940 vs ₹4,780)
- ✅ Buy: TCS (🎯 ₹3,310 vs ₹3,870)
Revenue Growth Outlook
The brokerage expects Q2 revenue growth at +1.3% QoQ, flat on a YoY basis. Growth is likely to be led by LTIMindtree (+3.1%) and Infosys (+2%), while Wipro could see muted growth at just +0.4%. Cross-currency movements are expected to be a small positive contributor.
⚠️ FY26 revenue growth: cut to 0.9% (from 1.1%)
⚠️ FY27 revenue growth: cut to 5.5% (from 6.1%)
Macro Headwinds and Sector Risks
The key concern for the IT sector remains weak discretionary spending, global macro uncertainty, and potential outsourcing headwinds. Policy changes in visa rules and risks from generative AI adoption could impact the business model of legacy IT players.
📉 The sector trades at ~20x forward P/E — below its 5-year average, near its 10-year average, yet still at a 40–50% premium to global peers.
Guidance and Expectations
Some companies may tweak guidance during results. Infosys is expected to maintain its 2–3% range, while HCL Technologies could reaffirm 3.5–5% growth guidance. Investors should watch for management commentary on deal pipelines and client spending patterns.
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Investor Takeaway
Goldman Sachs sees Indian IT’s Q2 earnings season as relatively uneventful, with margin improvements offset by weak growth visibility. The near-term may remain muted, but long-term investors can focus on high-quality compounders like TCS while exercising caution in structurally weaker names. As markets digest macro headwinds, stock-specific opportunities could emerge. For more in-depth sector strategies, you can explore expert analysis at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
