Is the Indian IT Sector Facing Soft Growth in Q1?
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Synopsis
The Indian IT services landscape is bracing for a soft growth phase in Q1 FY26, as highlighted in a recent report. While large-cap firms may face challenges, mid-cap companies show potential for better performance, particularly in the BFSI sector. Stay tuned to understand the implications of these trends on the industry.
Key Takeaways
- Soft growth anticipated for large-cap IT firms in Q1 FY26.
- Adjusted growth guidance for Infosys reflects cautious market sentiment.
- Potential for mid-cap companies to excel in specific sectors.
- Operational challenges noted for major players like TCS and Wipro.
- Demand dynamics are shifting, especially in BFSI.
New Delhi, July 8 (NationPress) The Indian IT services industry is projected to see soft growth in the first quarter of FY26, despite traditional seasonal strengths, according to a report published on Tuesday.
The earnings of IT firms are anticipated to be varied, with a notably weak quarter for ER&D services firms on a quarter-on-quarter (QoQ) basis, as per Equirus Securities' findings.
This report evaluates major players like Infosys and Tech Mahindra among large-cap IT firms, and mid-cap companies including Zensar, Mphasis, and KPIT eClerx.
Equirus notes adjustments in Infosys's sales growth forecast for FY26 and anticipates subdued growth among the six largest IT companies.
"Infosys is expected to guide a growth range of 1.0-3.25% in US$ sales, primarily to incorporate additional inorganic growth contributions of approximately 0.4% (previous guidance was 0-3%) while maintaining its EBIT margin guidance at 20-22% for FY26E," the report indicates.
The report further states, "The top six large-cap companies are likely to show QoQ growth between (-) 2.6% to (+) 1.4% in US$ sales in constant currency for Q1 FY26E. Equirus foresees significant cross-currency effects QoQ among these large caps, ranging from 120-230 basis points QoQ."
Nonetheless, the firm anticipates strong performance from certain mid-cap IT/BPO service firms.
While demand sentiment is expected to be cautious, there are indications that vendors are experiencing enhanced demand tailwinds in the BFSI sector.
The report predicts TCS's US$ revenue will decline by 0.4% QoQ in constant currency terms, primarily due to a contraction in the BSNL contract and reduced growth in international markets.
Equirus also expects Wipro's US$ sales to decline by 2.6% QoQ in constant currency, while HCL Tech's US$ revenue growth is projected at 1.4% QoQ.
According to the report, Tech Mahindra's US$ sales are predicted to reduce by 0.8% QoQ in constant currency, attributed to seasonal weaknesses in Comviva and ongoing reduced demand from some high-tech clients.
Point of View
It's crucial to remain grounded in the reality of the Indian IT landscape. The anticipated soft growth in Q1 FY26 indicates that while larger firms may struggle, there are opportunities for mid-cap players, particularly in sectors like BFSI. This dynamic landscape requires ongoing monitoring and analysis.
NationPress
21/07/2025
Frequently Asked Questions
What is the expected growth rate for Infosys in FY26?
Infosys is projected to guide for a growth rate of 1.0-3.25% in US$ sales, reflecting adjustments in their previous forecast.
How will TCS's revenue be affected in Q1 FY26?
TCS's US$ revenue is expected to decrease by 0.4% QoQ in constant currency terms due to a ramp-down in the BSNL deal.
What trends are anticipated in the mid-cap IT sector?
Mid-cap IT/BPO companies are expected to show promising sales performance, particularly in the BFSI sector.
