FII holdings in IT at 13-year low: Time to buy or brace for more pain?
The brokerage notes that the Indian IT sector is currently trading at a dividend yield of 3.2%, among the highest in the last decade, providing a cushion to valuations amid uncertainty. Despite weak sentiment, key indicators such as deal wins, pricing improvements, and hiring trends point to a relatively stable demand environment.
Infosys, Persistent Favoured; Wipro, TCS Expected to Lag
BNP Paribas expects Q1FY26 performance to diverge across Tier I IT firms. Infosys and Persistent Systems are forecast to post strong numbers, while TCS and Wipro may report weaker results. Infosys is projected to deliver 2.1% constant currency (CC) revenue growth, defying seasonal headwinds, whereas large-cap peers could see a -1% to -2.5% QoQ CC revenue decline.
Mid-cap players like Persistent may see QoQ dollar revenue growth of 1%–4%, supported by operational efficiency and favourable currency movements. EBIT margins are likely to remain flat or decline among large caps, while mid-caps could witness improvement.
Recovery Signs from Global Peers
Encouraging signals from global players also fuel cautious optimism. Accenture's Q4FY25 guidance, placed at the higher end of its range, implies a rebound in organic growth. BNP Paribas highlights a shift in client conversations from 'pause' to 'leapfrog' initiatives.
The brokerage maintains a positive outlook on Infosys, TCS, Persistent Systems, and HCL Technologies, while downgrading LTIMindtree to neutral following recent stock gains. It remains wary of Tech Mahindra and Wipro, citing continued underperformance risks.
Sector Guidance and Outlook
For FY26, Infosys may revise its growth guidance to 1.5–3.5%, while HCL Tech is expected to retain a 2–5% CC growth outlook. Wipro could project a modest -1% to +1% QoQ CC growth for Q2FY26.
BNP Paribas concludes that despite short-term headwinds and the possibility of trade tension escalations, the bearish investor positioning is already pricing in much of the downside. If macroeconomic indicators stay supportive — particularly in the US — the current levels could offer long-term accumulation opportunities in select IT names.
Disclaimer: This report is for informational purposes only and should not be construed as investment advice. Investors are advised to consult certified financial advisors before making decisions.
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