India's IT sector is bracing for a muted Q2 in FY26, with analyst reports suggesting a "status quo" performance amid sluggish global tech spending. The $283-billion IT outsourcing industry is unlikely to see a significant turnaround in the July-September quarter, as restrained global technology spending continues to be a major headwind.
Several factors are contributing to this cautious outlook. Macroeconomic uncertainty, the potential for US tariffs, and ongoing inflation and policy shifts are weighing on corporate budgets, leading to restrained discretionary IT spending. Moreover, new US regulations, such as the hike in H-1B visa fees, are creating a cautious spending environment among clients, especially since the US remains the largest revenue market for Indian IT companies. Clients are exhibiting indecision, further exacerbated by regulatory uncertainty and the transformative impact of generative AI technologies, prolonging the weak demand cycle.
Despite these challenges, some segments of the Indian IT sector are expected to perform better than others. Mid-tier companies are predicted to outperform their Tier-1 counterparts. Nuvama expects mid-tier companies like Coforge, Persistent Systems and Hexaware to lead the pack, while large-cap firms like TCS, Infosys, Wipro, HCL Tech, and Tech Mahindra may deliver modest growth. Specifically, Coforge is expected to lead with 6% QoQ growth, driven by the Sabre deal, while Persistent Systems and Hexaware are projected to deliver solid growth of 3.7% and 3.2% QoQ, respectively.
Among the Tier-1 companies, Infosys and HCLTech are expected to deliver relatively stronger growth, while TCS and Wipro may report weaker results. TCS is expected to deliver flat growth in the quarter, with revenues likely to rise 0.2% quarter-on-quarter. Infosys could clock about 2% growth in dollar terms, aided by seasonal strength and contributions from recent acquisitions. HCLTech is expected to post 1.5-2% growth, supported by ramp-ups in hi-tech deals. Wipro, by contrast, is likely to report flat sequential revenue in its IT services unit.
From a vertical perspective, banking, financial services and insurance (BFSI), and hi-tech are seen as relative bright spots, while manufacturing, retail and auto face tariff and demand headwinds. Healthcare and life sciences remain cautious, with spending cycles elongated.
While the weakening rupee could cushion margins after a soft first quarter, analysts warn that discretionary IT spending may remain muted. Nuvama expects the IT sector to clock stable performance in the September quarter (Q2FY26) after a weak start to the year. The brokerage noted sequential growth across most firms, but cautioned that macro volatility and weak discretionary tech spending could keep near-term sentiment uncertain.
Looking ahead, the Indian IT sector is expected to maintain 6-8 percent revenue growth in 2025-26. However, this would mark the third consecutive fiscal year with single-digit growth for the sector, a significant departure from the higher growth rates it once enjoyed. While the overall deal environment appears stable, with traction in cost take-out and infrastructure modernization deals, clients remain reluctant to commit fresh budgets to large-scale programs, with tariff volatility and broader macro concerns weighing on sentiment.
