As the financial world gears up for the Q4 earnings season, major players in the technology sector, including TCS, Infosys, Wipro, and HCL Tech, are under the spotlight. With significant global economic uncertainty looming, these companies’ upcoming performances are poised to capture investor attention. While the outlook suggests a challenging quarter ahead, the question remains: will tech stocks meet the expectations set for Q4 of FY25?

Tech Sector Performance in Q4 FY25

The tech landscape has witnessed a mix of pause and contraction this quarter. According to JM Financial, major firms are expected to achieve growth within the lower range of their guidance. The forecast anticipates a modest growth rate of (1.4)-0.2% in constant currency for large-cap companies, whereas mid-cap firms might showcase a more robust performance, ranging from 0.6-3.3%.

• Rising Uncertainty: Analysts are wary that the ongoing global economic uncertainty, particularly with new tariffs on the horizon, could affect guidance.
• Investor Focus: JM Financial emphasizes that investors should assess whether this uncertainty will simply delay recovery rather than halt it completely.

Navigating the Challenges Ahead

Experts suggest a cautious approach. JM Financial advises investors to prioritize companies with solid valuations and clear earnings visibility, like TCS and Tech Mahindra. They state, “Getting our positioning right may yield greater rewards than trying to predict when client spending will bounce back.”

Motilal Oswal echoes this sentiment, highlighting that short-term fluctuations might delay the recovery in discretionary spending, thereby tempering expectations for a significant rebound in FY26, especially among large-cap firms.

Discretionary Spending and Larger Deals

With a noticeable slowdown in discretionary spending, attention is shifting back to larger deals. JM Financial warns that any downturn within the US Banking, Financial Services, and Insurance (BFSI) sector could be troubling. They believe that while spending may be deferred, it is not entirely curtailed, leading to growth driven by significant deals despite ongoing margin pressures.

Earnings Projections for Major Tech Firms

As we approach the earnings announcements, JM Financial has revised its revenue growth expectations for the top six IT companies for FY26, lowering it to 2.7-5.8% from a previous estimate of 4.4-7.8%. Here are some specific forecasts:

• Infosys: Expected to guide for 3-5% growth.
• HCL Tech: Likely to follow suit with a 3-5% range, bolstered by inorganic contributions.
• Wipro: Anticipated guidance of -1% to +1% quarter-over-quarter for Q1 FY25.
• KPIT: Projected growth guidance of 12-14% year-over-year in constant currency.

Midcap vs. Large Cap Expectations

For mid-cap companies, JM Financial’s estimates remain steady, with earnings per share aligning closely with top-line projections. The deal momentum for firms like Mphasis and KPIT is expected to persist, providing potential surprises on the upside.

Strategic Recommendations for Investors

As we look forward to the earnings reports, here are the top recommendations from JM Financial and Motilal Oswal:

• JM Financial: Recommends TCS and Tech Mahindra as top large-cap picks, while identifying Mphasis as a value option among mid-caps.
• Motilal Oswal: Has downgraded Infosys to a Hold rating and Wipro to Sell.

In conclusion, while the road ahead for the tech sector appears rocky, astute investors may find opportunities within mid-cap firms and companies with solid fundamentals. As the Q4 earnings season unfolds, all eyes will be on the guidance and performances of these key players.