 "IT companies, IT sector")
With discretionary spending still under pressure, the information technology (IT) services industry continued to face an uncertain demand environment in the third quarter of 2025-26 (Q3FY26). This may nudge companies to rely on cost-takeout and efficiency-led programmes to drive growth well into the second half of FY26.
According to Bloomberg estimates, the top six IT services players were estimated to have revenue growth in the range of 1 per cent to 4 per cent, sequentially. On a year-on-year basis, companies may show improvement in growth.
While the October–December quarter is seasonally weak due to holidays and furloughs in key markets such as the US and Europe, this earnings season would be keenly watched for management commentary on artificial intelligence (AI), particularly whether AI-led demand is beginning to translate into meaningful deal momentum and revenue visibility.
The Street would look for commentary on AI strategy, with the majority of firms now getting bullish on their inorganic plans. TCS has already announced two acquisitions and its foray into data centre business, Wipro acquired Harman’s DTS business, Coforge acquired Encora and many other deals are in the works by other companies.
“At the ecosystem level, leading LLMs (Large Language Models) such as OpenAI and Claude are opening structured channel partnerships with SIs, suggesting the AI services layer is beginning to formalise. We expect momentum here to build over the next six months, with AI services demand inflecting into CY26,” said a Motilal Oswal research report.
Additionally, the Street, while being aware of the seasonality of the quarter, would also keenly await details on client-budget trends, H1-B visa dependency and its impact, and update on discretionary spends.
“Deal-win signings remained muted as it declined further month-on-month in November, as we head into the furlough season. The three-month rolling sum of deal signings, a healthy one-quarter lead indicator of deal TCV, declined further month-on-month. Deal announcements were concentrated in Europe and do not show any year-end budget flush so far,” BNP Paribas wrote in a note last month.
That was indicative in the recent results of Accenture, which reported a good set of numbers for its first quarter with revenue growth of 5 per cent, at the upper end of the guidance band. And yet, the world’s largest IT services company did not raise its guidance or narrow down the range.
UnearthInsights expects 3-5 per cent growth for India’s technology industry this financial year, which would help it cross the $290 billion-mark, but still fall short of the National Association of Software and Service Companies (Nasscom) projections of $300 billion. Technology services firms would grow at the same rate while engineering services and global capability centres (GCC) would drive the majority of the growth.
“Persistent US economic uncertainty, including recession fears, rising interest rates, and a softer job market, has led to clients deferring discretionary IT spending and digital transformation projects,” said Gaurav Vasu, founder and CEO, UnearthInsights.
He has also maintained that the IT services sector growth may slow down to 1 to -1 per cent 2026-2027 (FY27), with the US administration’s localisation push with visa fee hike or Hire Act which directly impact outsourcing or offshoring of technology transformation for both IT services and GCCs to not just India but other technology destinations like Philippines, Mexico, or Poland.
For IT companies, the biggest boost to their margins and bottom line would be the impact of depreciation of the rupee. The rupee, which declined 4.7 per cent against the US$ in 2025, breached the 91-level last month. However, analysts expect most of the gains to be wiped away due to wage hikes and merger and acquisitions.
Being predominantly export-oriented, the IT services sector has historically benefited from rupee depreciation through higher revenue realisation and margin gains. Over the past few financial years, this effect has been evident, with recent rupee volatility largely driven by global geopolitical developments, including US tariff actions and broader trade-related uncertainties, according to Crisil.
Analysts would also be looking at indications on how Gen AI bookings are shaping up for the Indian companies. Only TCS and HCL Tech have come out with their AI revenue with the former reporting a $1.5 billion kitty, which is growing 16.3 per cent sequentially. Accenture leads the pack with bookings of $5.9 billion and revenue of $2.7 billion for the last financial year.
But there are green shoots too, which, analysts say, are being led by the US as deal-making activity in the banks is at an all-time high and companies are also figuring out how to deal with tariffs.
“They (US firms) have a playbook about how to deal with uncertainty. So they have figured out how to deal with uncertainty and the current government (in the US), better than their counterparts in Europe. US firms have a stronger capital spending plan and belief that revenues will grow,” Stanton Jones, distinguished analyst at research firm ISG, told Business Standard.
IT results would begin with Tata Consultancy Services reporting numbers on January 12, Infosys on January 14 and Wipro on January 16.
