Battle of the IT Titans: TCS Emerges as Top Pick After Q1 FY26 Results

As India's leading information technology (IT) giants unveiled their financial performance for the first quarter of fiscal year 2025-26 (Q1 FY26), the spotlight has once again turned to D-Street. Investors, grappling with the perennial question of which IT stock to buy, sell, or hold, are finding clarity in the latest earnings reports from Tata Consultancy Services (TCS) and HCL Technologies Ltd. Following a meticulous review, market analysts are largely signaling a preference for TCS, citing its robust performance and strategic positioning.

Q1 Earnings Unpacked: A Tale of Two Titans

The April-June quarter brought mixed fortunes for these IT stalwarts.

HCL Technologies reported its Q1 FY26 results on Monday, July 14, revealing a 9.7% year-on-year decline in its consolidated net profit, which settled at ₹3,843 crore (attributable to owners). This dip was primarily attributed to increased expenses and a one-time impact from a client's bankruptcy. Despite the profit contraction, the company saw an 8.1% rise in revenue from operations, reaching ₹30,349 crore compared to ₹28,057 crore in Q1 FY25. However, a crucial point of concern for analysts was HCL Tech's operating margin, which stood at 16.3% – below internal expectations. The company cited lower utilization due to delays in a specific program ramp-up as a key factor. HCL Tech shares closed down by 1.04% at ₹1,619.95 on the BSE following the announcement.

In contrast, Tata Consultancy Services (TCS), which announced its Q1 FY26 results on Thursday, July 10, showcased a more resilient performance. The Tata group firm reported a 6% increase in net profit, reaching ₹12,760 crore, up from ₹12,040 crore in the same period last year. While revenue saw a modest 1.3% increase to ₹63,437 crore (compared to ₹62,613 crore in Q1 FY25), it experienced a 3% decline on a constant currency basis. Nevertheless, TCS's operating profit margin demonstrated a positive trend, improving by 0.30% quarter-over-quarter to a strong 24.5%.

Expert Consensus: Why TCS Takes the Lead

Leading market voices are largely aligning on TCS's superior standing post-Q1.

Mohit Gulati, CIO and Managing Partner of ITI Growth Opportunities Fund, firmly believes that "TCS clearly emerges as the more compelling IT bet" after the Q1 FY26 earnings. He highlights TCS's "superior margin profile, robust deal wins, and a steady profit trajectory" as key differentiators. While acknowledging HCL Tech's long-term potential, Gulati advises a "wait-and-watch approach" due to near-term headwinds surrounding its margins and deal execution. He did, however, commend both companies for their enduring resilience across various business cycles, underscoring the fundamental strength of India's IT sector.

Echoing this sentiment, Vinit Bolinjkar, Head of Research at Ventura Securities, also favors TCS. His rationale hinges on TCS's ability to "maintain its margins," coupled with anticipated orders from BSNL expected in the coming quarter. HCL Tech's notable drop in margins, he notes, is a significant factor in his assessment.

Bhavik Joshi, Business Head at INVasset PMS, offered a detailed comparative analysis. He observed that while both companies delivered "solid Q1 FY26 results," their paths diverge in critical areas. TCS, with its "robust margin leadership of 24.5% and industry-best cash conversion," has showcased resilience amid weaker global demand. Its strategic emphasis on AI and a healthy deal pipeline, marked by a $9.4 billion order book (a 13% year-on-year increase), provides a sturdy foundation for long-term growth, even with some near-term visibility challenges. For investors seeking stability, consistent margins, and strong cash flow, Joshi asserts that "TCS stands out as the more defensive choice."

On the flip side, Joshi points out that HCL Technologies achieved "strong revenue growth of 8% YoY," propelled by its digital and cloud capabilities. However, the company is grappling with "significant margin pressures," with operating margins declining to 16.3%. This is primarily attributed to substantial investments in Generative AI and Go-to-Market strategies, creating a "higher risk-reward scenario." While HCL Tech aims to capitalize on future AI adoption, its short-term profitability concerns, evidenced by the 9.7% year-on-year net profit decline, warrant careful consideration.

In summary, Joshi concludes that "TCS presents a safer, margin-driven play with better near-term visibility," making it the preferred option for investors prioritizing stability and margin leadership. However, he suggests that "those willing to embrace a bit of risk in exchange for higher growth potential might find HCL Tech appealing," given its aggressive digital and AI investments.

As the financial year progresses, the strategic decisions and execution by these IT powerhouses will undoubtedly shape their market trajectories, offering compelling opportunities for discerning investors.