Tech Mahindra and HCL Technologies Signal Uneven IT Recovery

Tech Mahindra and HCL Technologies delivered encouraging September-quarter FY27 results, with Tech Mahindra reporting 2.4% constant-currency sequential revenue growth and a 32.7% year-on-year profit increase, while HCLTech expanded its EBIT margin to 18.2%. The results lifted sentiment, but sector-wide growth and hiring trends still point to an uneven recovery.

What did Tech Mahindra and HCLTech report in Q2 FY27?

Tech Mahindra reported consolidated revenue of Rs 16,180 crore, up 2.4% quarter-on-quarter in constant currency, supported by the ramp-up of a large telecommunications deal. Its consolidated net profit rose 32.7% year-on-year to Rs 1,585.6 crore, compared with Rs 1,194.5 crore in the corresponding quarter a year earlier. The company also reported total contract value, or TCV, of $1.02 billion.

The deal figure was above the estimated $800 million and marked Tech Mahindra's fourth consecutive quarter with TCV above $1 billion. Its EBIT margin rose 40 basis points quarter-on-quarter to 14.8%, extending margin expansion to a 12th consecutive quarter. The performance placed Tech Mahindra among the stronger large-cap IT companies in the quarter, though the available data does not establish that demand has broadly recovered across its client base.

HCLTech reported revenue of Rs 35,620 crore, up 12% year-on-year, and net profit of Rs 5,132 crore, up 21% year-on-year. On a constant-currency basis, revenue grew 2.3% sequentially. Its TCV was about $3.25 billion, higher than $2.4 billion in the preceding quarter and broadly in line with estimates.

Why are margins and deal wins important for the IT recovery?

Margins and deal wins matter because they show how companies are managing current delivery costs while building potential revenue for future quarters. Tech Mahindra's margin improvement was linked to its ongoing cost-cutting programme, while its revenue growth was helped by a large telecommunications deal ramp-up. HCLTech's margin expansion was aided by acquisitions, operating leverage and Advanced AI.

Deal activity, however, has not translated uniformly into immediate revenue growth across Indian IT. A Forrester analyst cited a disconnect between deal activity, technology demand and near-term revenue growth. That gap helps explain why better contract wins and improved profitability can coexist with caution over client spending and weak or modest sequential growth at some peers.

HCLTech's guidance also reflects this balance. The company retained the upper end of its full-year constant-currency revenue growth guidance at 4%, while another reported outlook placed its FY27 range at 2.5% to 4%, narrowed from 1% to 4%. The narrowed range signals some improved visibility, but the ceiling remains restrained relative to a broad-based upcycle.

Is AI becoming a meaningful revenue driver for Indian IT firms?

AI is becoming a measurable revenue stream at selected companies, although the available figures also show that its contribution differs substantially across firms. HCLTech's advanced AI revenue reached $219 million, rising 78% year-on-year in constant currency. This was one of the factors cited in its margin improvement during the September quarter.

Across the sector, AI-related work has improved investor interest after concern over AI-driven disruption weighed on IT stocks. TCS reported AI revenue of $3.1 billion, exceeding 10% of its topline, while Infosys recorded $5.2 billion in large-deal wins. These figures indicate active technology spending, but they do not remove the broader uncertainty around when AI opportunities will convert into sustained company-wide revenue growth.

The market response has therefore been driven by both earnings and expectations. Investors have reassessed software stocks after a sell-off in AI-linked shares, but future confidence will depend on whether AI revenue, deal pipelines and client budgets produce stronger reported growth rather than isolated quarterly gains.

What does the sector data say about client demand and jobs?

The sector data suggests that BFSI spending provided an important support to growth, while workforce trends remained weak. In Q2 FY27, BFSI growth was reported at 4.6% for Tech Mahindra and 7.1% for HCLTech. The same vertical grew 3.9% for TCS and 1.3% for Wipro, making banking and financial services a key source of resilience for the large IT firms.

Yet the wider sector recovery remains incomplete. TCS recorded just 0.2% sequential revenue growth, compared with sequential growth of about 2% at HCLTech and Tech Mahindra. The six largest IT services companies - TCS, Infosys, HCLTech, Wipro, Tech Mahindra and LTM - collectively recorded 92,000 employee exits over the past year, pointing to a structural shift in workforce patterns even as deal activity improves.

Indian IT stocks nevertheless gained after the results. The Nifty IT index climbed 2.87% to 31,602.10, and the sector had rebounded about 13% in the month to October 23. Better-than-expected earnings and positive management commentary supported the move, but share-price gains do not by themselves confirm a sustained demand recovery.

Conclusion

Tech Mahindra's profit growth, deal momentum and continued margin expansion, alongside HCLTech's higher margin, AI revenue growth and larger TCV, gave investors evidence that parts of the IT services market are stabilising. The September quarter also showed that BFSI demand and selected deal ramps can support performance even when sector-wide revenue growth remains mixed.

The next focus is whether contract wins turn into more consistent revenue growth and whether clients expand technology budgets. Investors will also watch Tech Mahindra's execution on its cost programme, HCLTech's progress within its FY27 constant-currency guidance range, and the ability of both companies to convert AI-related opportunities into meaningful business growth.