rewrite this title and make it good for SEOIT sector stabilising; Motilal Oswal sees 16–33% upside in HCL Tech, Coforge

The Indian IT services industry delivered a steady performance in the September 2025 quarter, with nearly half of the leading players exceeding revenue forecasts and a majority meeting or surpassing margin expectations.

While discretionary technology spending remains subdued, operational resilience and improving deal execution suggest that the sector may be approaching the trough of its demand cycle.

Deal ramp-ups, favourable seasonality and early benefits from cost optimisation programs supported sequential revenue growth.

Management commentary pointed to stable client budgets and a gradual pickup in spending in select verticals, indicating an improving tone after several quarters of muted demand. Although visibility for the second half remains cautious, the sector appears better positioned to weather near-term volatility.

Profitability trends were encouraging, aided by currency tailwinds, workforce rationalisation and productivity gains.

The depreciation of the rupee against the dollar provided a boost to operating margins, while tighter cost control helped offset wage hikes and higher investments in digital capabilities.Analysts expect margins to remain steady in the near term, with continued focus on efficiency and utilisation.Structurally, the industry is entering an important transition phase as enterprises move from AI experimentation to implementation. Historical patterns show that service growth typically follows major hardware and platform shifts—seen earlier during the transitions to cloud and mobile ecosystems.

With AI infrastructure and use cases maturing, early enterprise adoption is beginning to accelerate. The report indicates that broad-based AI-led revenue opportunities may start to materialise over the next 18–24 months, paving the way for a new growth cycle.

While AI monetisation remains nascent, the sector’s readiness, strategic investments and expanding pipeline of transformation deals position it well for medium-term growth. Valuations are near long-term averages, suggesting room for re-rating as earnings visibility improves.

Overall, the report underscores a sector in stabilisation mode, with improving execution, resilient margins and a medium-term catalyst emerging from AI adoption.

Though a full-fledged recovery will take time, early indicators point toward a gradual and sustainable turnaround in India’s IT services landscape.

HCL Technologies: Target Rs 1800 | LTP Rs 1544 | Upside 16%

HCL Technologies delivered a strong 2QFY26, with revenue up 2.4% QoQ CC, ahead of estimates and EBIT margin at 17.4%, supported by robust deal wins (TCV: USD 2.6b, +16% YoY).

The company upgraded its Services growth guidance to 4–5% YoY CC, reaffirming steady execution. Growth was led by IT services and ER&D, aided by early traction in AI-led solutions, which now form ~3% of total revenue.

Advanced AI platforms like AI Force and AI Factory are driving productivity and non-linear growth. We expect revenue/PAT CAGR of 5.3%/7.2% over FY25–27, supported by large-deal ramp-ups, AI adoption and healthy client mining.

While near-term margin pressures from wage hikes and furloughs persist, HCLT remains the fastest-growing large-cap IT firm with strong FCF generation and an all-weather portfolio.

Coforge: Buy | Target Rs 2400 | LTP Rs 1796 | Upside 33%

Coforge reported 5.9% QoQ CC revenue and 18% QoQ PAT growth, order intake of USD 514 mn and a robust EBIT margin of 14%. A 12-month executable order book of USD 1.6 bn provides near-term revenue visibility.

Coforge’s consistent quarterly deal wins of >USD 500 mn and Cigniti-led cross-selling synergies are fuelling robust momentum. Management targets 20 large deals in FY26 (10 already closed in 1HFY26).

Robust deal pipeline, high order visibility and execution strength underpin management’s 23% YoY organic growth outlook for FY26. Coforge stands out as our top pick and a likely growth leader in the IT universe.

(The author is Head – Research, Wealth Management, Motilal Oswal Financial Services Ltd)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)