IT sector Q3 results review: Major Indian IT services companies have reported December quarter (Q3) earnings slightly above expectations, fanning hopes that the worst for the sector may be behind, though it may still be early to discount the impact of global uncertainties and the AI factor.

Most of them reported a decline in profits due to the one-time impact of the new labour codes. However, revenue trends, guidance, and management commentaries indicated green shoots are emerging in the sector. Tech Mahindra, for instance, reported a positive surprise this quarter, particularly on deal wins and margins.

The key numbers

TCS reported a nearly 14% year-on-year (YoY) fall in its consolidated profit to ₹10,657 crore, impacted by a one-time charge of ₹2,128 crore due to the implementation of new labour laws. Its revenue from operations for the quarter, however, rose nearly 5% YoY to ₹67,087 crore

Infosys reported a 2.2% YoY drop in consolidated profit at ₹6,654 crore for Q3FY26 after the impact of ₹1,289 crore on its earnings due to the new labour codes. However, consolidated revenue during the quarter rose 8.9% YoY to ₹45,479 crore.

Infosys slightly increased its revenue growth estimates for FY26 to 3-3.5% in constant currency compared to 2-3 per cent estimated earlier.

HCL Tech’s net profit dropped 11.21% YoY to ₹4,076 crore, impacted by a one-time cost of ₹956 crore related to the new labour code. Its revenue rose by 13.3% YoY to ₹33,872 crore.

Tech Mahindra’s profit rose by 14% YoY to ₹1,122 crore despite a one-time impact of ₹272.4 crore due to the new labour code. Revenue from operations climbed 8% to ₹14,393 crore.

Wipro’s net profit declined 7.11% YoY to ₹3,119 crore, while revenue rose by 5.5% YoY to ₹23,555 crore.

What do Q3 earnings indicate?

Experts highlight that, despite discretionary spending not picking up meaningfully, growth resilience and margin performance were quite strong. This indicates that the worst could be behind.

“The latest results from Infosys and TCS indicate that the IT sector is moving from a phase of uncertainty toward gradual stabilisation. Infosys’s upward revision in revenue guidance and stronger deal pipeline suggest that client confidence is improving, particularly in digital and AI-led transformation,” Ajit Mishra, SVP of Research at Religare Broking, observed.

Mishra highlighted that TCS’s performance reflects steady execution and resilient margins, though near-term profitability remains impacted by regulatory changes.

While demand from key markets like the U.S. is still cautious, the pace of deterioration appears to be slowing.

“We believe the sector may have seen the worst of its earnings downgrades, but the recovery is likely to be measured rather than sharp, driven by large deal wins, cost discipline, and emerging AI opportunities,” said Mishra.

The IT sector is facing not only cyclical but also transition-related challenges due to the emergence of AI.

The sector is now witnessing AI being embedded across projects.

Analysts from Choice Institutional Equities and Research highlight that clients are increasingly looking for productivity gains.

While AI-led deals tend to be smaller and shorter in tenure at this stage, the quality of deals is improving.

“We are seeing a shift towards value-based pricing and higher revenue productivity, which should support margin expansion,” say experts from Choice.

Things appear to be gradually falling in place for the sector but weak global demand and cautious discretionary spending amid geopolitical uncertainties remain major headwinds for the sector.

Experts say this could be the time investors start considering high-quality IT stocks for the long term, as their growth outlook improves.

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