The December quarter (Q3FY26) results of large-cap IT companies Tata Consultancy Services Ltd (TCS) and HCL Technologies Ltd played out largely as expected, with HCL leading on revenue growth. Both companies flagged pockets of demand improvement, but the recovery remains uneven, and their Q3 performances diverged on several counts.
HCL reported a strong 4.2% sequential constant currency (CC) revenue growth, aided by its products and platforms business, for which the December quarter is seasonally strong. Total contract value (TCV) of new deal wins surged 43.5% year-on-year to a multi-quarter high of $3 billion. Management said booking momentum was driven by applications and engineering and R&D (ER&D) services, with annual contract value bookings in Q3FY26 the highest in four years.
HCL also raised its FY26 CC year-on-year services revenue growth guidance to 4.75-5.25% from 4-5%, while overall growth guidance was narrowed to 4-4.5% from 3-5%. The revised outlook implies a softer March quarter and a weak FY26 exit. The guidance excludes contributions from recent acquisitions, including the telco solutions business from HBO, and Jaspersoft, and Wobby.
In contrast, TCS reported a modest 0.8% sequential CC revenue growth, driven primarily by its India business, while international markets remained subdued. Deal wins fell 9% year-on-year to $9.3 billion. Although TCS does not provide revenue growth guidance, management said that based on the deal pipeline and gradually improving demand, revenue growth in international markets is expected to be higher in 2026 than in 2025.
HCL’s earnings before interest and tax (Ebit) margin expanded 120 basis points sequentially to 18.6%, even as services margins slipped 10 bps to 16.4%. The company retained its FY26 Ebit margin guidance of 17-18% which is inclusive of restructuring cost, but excludes one-time impact of the new labor codes.
TCS’s Ebit margin excluding one-off items was flat sequentially at 25.2%. It reiterated its aspirational margin band of 26-28%, which would need better revenue growth.
Both companies reported continued traction in artificial intelligence (AI). HCL’s advanced AI revenue rose 19.3% sequentially in CC terms to $146 million, while TCS’s annualized AI CC revenue grew 17% to $1.8 billion. TCS management said clients are moving from experimentation to scaled AI implementations.
Investor caution
Even so, the stocks barely moved on Tuesday, a day after the earnings announcement, underscoring investor caution amid the lack of clear evidence of a broad-based revival. For HCL, recent acquisitions are expected to contribute meaningfully only after Q1FY27. Also, the uptick in its product business in Q3 was led by tactical license revenues rather than sticky subscription revenues, which may not be sustainable, cautioned Elara Securities (India).
Still, HCL appears better positioned. Jefferies India said TCS’s Q3 results offer limited evidence of any pick-up in growth of international business. It estimates TCS will deliver around 5% recurring earnings per share (EPS) CAGR over FY26-28, the lowest among the top three Indian IT firms, compared with an estimated 10% recurring EPS CAGR for HCL, the highest among the top five IT companies.
HCL trades at FY27 estimated price-to-earnings multiple of 23x, showed Bloomberg data, a slight premium to TCS’s 21x multiple. The valuation gap may stay due to HCL’s superior revenue growth. But rich valuation could limit steep upsides for HCL.
Goldman Sachs said the read-across from these results for the broader IT sector is neutral to modestly positive, suggesting that with demand visibility still cloudy through FY26 and FY27, investors will need to be highly selective.
