Signs of recovery: IT sector's results promising, guidance lifts outlook

Market movements, third-quarter (October-December 2025) results, and associated guidance from the information-technology (IT) sector suggest that the industry may be in early recovery mode. This is nascent. It could be derailed by geopolitical turmoil, currency volatility, key changes in American visa processes, and, more broadly, the isolationism of the Donald Trump administration. The Nifty IT index was down 12.5 per cent in 2025 — a significant underperformance, given that the headline Nifty was up 10.5 in the same period. However, in October-December 2025, the IT index recovered by 12 per cent. 

The third quarter is usually a soft one owing to holidays in Western geographies, and in that context, the results have been encouraging. The numbers reported so far have either met consensus expectations or beaten street estimates. Guidance from management of the frontline companies is cautiously optimistic — and that’s an improvement over the last 10 quarters, when guidance was just cautious. Infosys and HCL Tech have both materially raised guidance. TCS has said that it expects FY26 international revenues to exceed the level of FY25, based on what it sees as a gradual uptick in demand. Wipro still appears to be struggling to generate growth, however.  Among the next tier of companies, Tech Mahindra has also delivered better than expected results and the management tone is upbeat. 

According to TCS, recovery in international markets may be driven by artificial intelligence (AI), or AI-led short-cycle projects and broadbased AI adoption across geographies. Discretionary spending may improve and offset soft revenue. Infosys sees vendor consolidation as a plus and says client expectations of AI-led productivity gains are increasing. According to Tech Mahindra, the communications vertical is showing early signs of a turnaround and manufacturing is seeing growing demand from aerospace and industry, though auto is soft and hi-tech is volatile. ISG, an international research group, says growth was seen in both business outsourcing and engineering research & development (ER&D), while expansion in managed services in 2025 was flat and constrained by lack of mega deals. Trends such as Cloud migration, AI adoption, cybersecurity investment, and platform-led consumption continue to be visible. 

This implies that the business-services market for Indian IT companies is still subdued, but there’s a rebound in the banking and financial services space, and sustained momentum in infrastructure. Many Indian companies are strategically well placed to exploit the upmoves in infrastructure as a service (IaaS) and software as a service (SaaS), given hyperscaler investment and the gen AI-drive. Most top- and second-tier Indian IT firms have excellent balance sheets with zero debt and free cash. They are looking to deploy some of those resources in acquisitions to fill gaps in skills and diversify geographic footprints. TCS took over ListEngage and Coastal Cloud in December 2025, adding to its Salesforce consulting capacity, strengthening its AI-led transformation capabilities, and expanding its mid-market presence in the United States. Wipro has acquired ER&D player Harman DTS, enhancing capabilities in device engineering, along with access to Samsung’s ecosystem and South Korea as a market. Downside risks obviously exist and this nascent recovery could be a flash in the pan. But after 30 months or so of sailing through difficult times, the mood in the industry appears to be positive. There has also been a hit owing to the adoption of the four labour Codes, but this is likely to be a one-time adjustment.