IT sector staring at subdued revenue growth

Bengaluru: As the season for report cards on the second quarter (Q2) of the financial year (FY26) open up, analysts and brokerages are bracing for a muted performance by the country's IT services companies, with no improvement over the preceding quarter.

The first to go will be Tata Consultancy Services (TCS), which will announce its financial results on October 9. This will be followed HCLTech on October 13 and both Infosys and Wipro on October 16.

ICICI Securities in its IT preview said the demand environment has neither improved nor deteriorated since Q1FY26, as discretionary spends remain low. "Q2FY26 has likely benefited from tailwinds, mainly: 1) marginal cross currency and an INR depreciation fillip to margins; 2) stable pricing; 3) opportunities from agentic AI; and 4) momentum in BFSI, hi-tech," it said.

But the sector was not devoid of notable headwinds, mainly uncertain macros; protracted decision-making cycles; and GCCs (global capability centres) taking away market share, it added.

"Decision-making delays persist as the demand environment remains uncertain. Discretionary spending is impacted, but is relatively better for BFSI/hi-tech. Within verticals, BFSI continues to see traction with pockets of strength," the report elaborated.

Manufacturing, retail and automotive verticals may see tariff-related impact. It added that technology vertical is seeing some green shoots driven by 'AI-fication' and clients are exercising caution in the healthcare and life-sciences vertical.

"Companies have been indicating that revenue deflation from AI shall be compensated by higher volume of work. Most companies are hiring locally in the US to mitigate any future H-1B levy impact," the brokerage firm said.

Analysts also said that in the second quarter, IT firms are expected to report subdued revenue growth.

Motilal Oswal expects quarter-on-quarter (QoQ) constant currency (CC) growth in the range of 0.3% to 2.4% for large-caps and mid-caps expected to outperform once again with a growth range of -0.5% to 6.0%.

It projects revenue growth of 1% QoQ CC for TCS and 1.7% for HCLTech. The BSNL deal ramp-up for TCS is likely to kick in from the third quarter. Infosys is likely to report 2.4% CC growth sequentially, driven by deal ramp-ups, seasonally better first half of FY26 and a partial contribution from an acquisition.

Motilal Oswal estimates Wipro to report 0.3% QoQ CC, slightly above the mid-point of guidance, supported by inorganic contributions. Tech Mahindra is expected to post 1% QoQ growth, while LTIMindtree is likely to report 2% CC growth, aided by the agri-deal ramp-up.

Another important factor to watch out for during the second quarter is attrition. In the past few quarters, IT firms have been witnessing an increase in attrition rates. TCS' attrition in IT services was at 13.8% at the end of Q1, up 50 bps sequentially. Infosys' attrition rate was at 14.4% in Q1, up from 12.7% in the year-ago period.

HDFC Securities also forecasts subdued revenue growth in an otherwise seasonally strong quarter, as persistent global macroeconomic uncertainty and recent US tariff measures continue to dampen discretionary spending.  “Clients remain cautious, resulting in slower growth and intensified pricing pressure, although deal activity witnessed some improvement towards the end of the quarter. The overall deal pipeline remains steady, with deal wins in cost optimisation, infrastructure modernisation, and AI-led initiatives,” it said.

According to the brokerage firm, the recent H-1B visa fee hike is unlikely to cause near-term disruptions, but it is expected to alter delivery models by increasing onsite costs and accelerating offshoring trends over time.

Margins for the quarter should see some support from the rupee’s depreciation, which will help offset the impact of selective wage hikes, even as hiring trends remain muted across the sector, it said.

It anticipates that Infosys will keep its FY26E revenue growth guidance unchanged at 1-3% and HCLTech will retain its guidance of 3-5% for FY26E.  Wipro is likely to guide 0% to +1% QoQ for Q3FY26E. Infosys is likely to maintain a margin band of 20-22%, HCLTech at 17-18%, and TCS at 26-28%.

Companies' total contract values (TCVs) are expected to improve with deals coming from cost optimisation and GenAI initiatives (TCS at $8-10bn and Infosys at $3bn).

Cut-off box - Hiring in tech sector remains sluggish: Xpheno
The volume of active openings in the tech sector has turned sluggish over the last four months. The tech sector’s current contribution to India’s total active talent demand is 48% continuing in the sub-50% mark for 3 years said specialist staffing firm Xpheno in its latest report.
It said October has opened with an outlook for 1.05 lakh active openings in the tech talent market in India. The tech openings for October 2025 have a 43% freshness index with less than half of all openings being published or refreshed in the last 2-week period.
In comparison the month of September had a 37% freshness index and the same period last year had a 45% freshness of postings. The MoM rise in freshness of postings is attributed to the quarter end cleanup and refresh of openings and hiring plans it added.
Kamal Karanth Co-founder Xpheno told DH "While the sector has registered a few positive movements in demand volume and velocity the green shoots are few and far apart. Among the tech cohorts the IT services cohort continues to be a matter of concern on talent action and recent events on the US market front are set to further impact the cohort's demand outlook in the near-term."