Nifty IT index declines 2.5% as sector braces for subdued Q3 growth

Shares of information technology (IT) services companies came under pressure on Monday, January 5, as the NIFTY IT index fell 2.49 per cent, weighed down by expectations of muted growth in the sector for the third quarter of FY26.

 

All 10 constituent stocks in the index, including Larsen & Toubro Infotech (LTIM), Coforge, Oracle Financial Services Software (OFSS), Mphasis, Tata Consultancy Services (TCS), Tech Mahindra (TECHM), Persistent Systems, Wipro, Infosys (INFY), and HCL Technologies (HCLTECH), traded in the red. Among them, HCL Tech, and Infosys were the biggest laggards, each down by more than 3 per cent. Wipro, Persistent Systems, and Tech Mahindra fell over 2 per cent each, while TCS, Mphasis, and OFSS saw declines of around 1 per cent.

 

By 10:08 AM on Monday, the NIFTY IT index was trading at 37,441, down by 2.29 per cent. Meanwhile, the broader NIFTY 50 index stood at 26,317.45, down by a marginal 0.04 per cent or 11.10 points.  FOLLOW STOCK MARKET UPDATES TODAY LIVE

Muted growth expected for IT companies in Q3FY26

As per reports, IT companies are projected to report subdued growth in the third quarter of FY26, as ongoing pressure on discretionary spending continues to impact the sector and create an uncertain demand environment. Many companies are likely to focus on cost-cutting measures and efficiency-driven programmes to sustain growth into the latter half of FY26.

 

Bloomberg estimates suggest that the top six IT services firms may experience sequential revenue growth in the range of 1 per cent to 4 per cent. However, year-on-year growth may see a modest improvement.

 

The October to December quarter is typically weak due to holidays and furloughs in key markets like the US and Europe. As such, this earnings season, analysts believe, will be closely monitored for management commentary on artificial intelligence (AI), especially to gauge whether AI-led demand is translating into meaningful deal momentum and better revenue visibility. 

Furloughs, lower utilisation to impact revenue growth

According to Elara Capital, revenue for most IT services companies within its coverage universe is expected to be impacted by furloughs and lower utilisation in Q3FY26. Furlough levels are expected to remain in line with previous quarters. However, the brokerage expects deal momentum to persist as clients continue to invest in next-generation technologies such as cloud transformation, data analytics, and AI.

 

Elara also noted that clarity on growth for FY27 may come with the CY26 budgets, but they are not expected to show any substantial increases. "Attrition levels may rise due to talent migration to GCCs, and furloughs and wage hikes are likely to pressure margins for most companies," Elara said.

 

The brokerage expects Infosys, and HCL Tech to maintain their respective revenue growth guidance for FY26 at 2 to 3 per cent and 3 to 5 per cent, respectively. For Infosys, the projected growth rate for the next two quarters is expected to range between -1.5 per cent and -0.2 per cent, to align with the lower and upper ends of its annual revenue guidance.  ========= 

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