Motilal Oswal sees a cautiously optimistic picture for India’s IT sector in 2026 and highlights Infosys and Coforge as the best stocks for everyday investors.
Why the sector is expected to be soft now
In the third quarter of FY26, growth is likely to be flat because many companies take seasonal breaks and face higher wage costs. Large‑cap IT firms may grow only 0.3%–2.3% quarter‑on‑quarter, while mid‑caps could do a bit better, around 2.5%–3.5%.
What could turn things around
Even though the near‑term looks slow, businesses are expected to move from AI experiments to full‑scale projects in 2026. This should boost orders for things like modernizing applications, building data pipelines, and adding AI features.
- Companies such as TCS, Wipro, Coforge and Hexaware are already investing in AI and forming partnerships.
Motilal Oswal’s top IT picks
Infosys – Buy (Target ₹2,150, Upside ~32%)
- Revenue growth is likely to be flat in the next quarter because of seasonal breaks.
- US banking‑software business should stay steady.
- No major wage hikes mean operating margins can stay stable.
- Year‑on‑year growth guidance of 1%–3% is expected to hold.
Tech Mahindra – Buy (Target ₹2,325, Upside ~45%)
- Revenue may rise about 0.5% quarter‑on‑quarter.
- Auto‑manufacturing and telecom segments show signs of recovery.
- EBIT margin could improve by 60 bps to around 12.7%.
- Goal: 13% exit margin by FY26.
Coforge – Buy (Target ₹2,500, Upside ~51%)
- Revenue expected to grow 3% quarter‑on‑quarter despite furlough impacts.
- Margin may dip about 70 bps because of wage hikes starting Oct 1 2025.
- Target: close 20 large deals in FY26 (up from 14 in FY25).
- Watch: organic growth, Encora integration, and demand in BFS/insurance.
Hexaware Technologies – Buy (Target ₹1,100, Upside ~45%)
- Revenue could fall 2.5% quarter‑on‑quarter due to fewer licences and seasonal factors.
- Financial Services and Travel/Transport segments expected to drive growth.
- EBITDA margin may shrink about 60 bps, staying around 17% for the full year.
- Key monitors: large‑account wins, BFS momentum, and the CyberSolve acquisition impact.
What investors should watch
- How quickly AI projects move from pilots to large deployments.
- Wage‑increase pressures on margins, especially after Oct 2025.
- Deal pipelines and large‑contract wins for each company.
Bottom line
Even though the next quarter looks modest, AI‑driven spending is set to lift earnings and margins later in the year. Infosys and Coforge stand out as the most attractive bets for retail investors seeking upside in a soft market.
Remember, this is my view, not a prediction. Do your own research before making any investment decisions.