Synopsis
The Indian IT services sector is set for mid-single-digit USD growth in FY26, driven by market growth and share gains. HSBC Research forecasts 4-5% growth among large firms, while caution prevails due to macroeconomic factors, particularly in the US and Europe.Key Takeaways
- Projected mid-single-digit USD growth in FY26.
- Market growth of 2-3% and share gains are key drivers.
- 4-5% growth expected among large companies.
- Potential for 7-9% EPS growth over FY25-27.
- US macroeconomic conditions heavily influence IT sector performance.
New Delhi, April 2 (NationPress) The Indian IT services sector is anticipated to achieve mid-single-digit USD growth in the medium to long term, driven by a market growth of 2-3 percent along with additional gains in market share, according to HSBC Research on Wednesday.
For FY26, the report predicts a growth of 4-5 percent among larger firms, supported by a low base effect from the past two years and a stable macroeconomic outlook in the US and European markets throughout the year.
It also notes that the GCC headwinds are likely to persist, and the impact of GenAI is expected to be slightly negative. With a projected 4-5 percent growth in USD and a 3-4 percent depreciation in INR, the report forecasts an earnings per share (EPS) growth of 7-9 percent over FY25-27.
The fortunes of the IT sector are closely tied to the macroeconomic conditions in the US.
Given the volatility, analysts predict a cautious outlook for companies regarding their business strategies in 2025, particularly concerning the flow business.
In a worst-case scenario, it is believed that Infosys and HCLTech might issue growth guidance of 2-5 percent for FY26, considering potential macroeconomic weaknesses in the US.
Wipro's guidance for Q1 2026 may range from 0-2 percent. On a positive note, while predicting the flow business remains challenging and uncertain, large deal activity has not diminished, according to the report.
Q4 FY25 is expected to be a weak period due to seasonal fluctuations and ongoing poor performance in Europe, compounded by uncertain results from the US.
The report highlights that the macroeconomic outlook in the US and Europe, competition within the GCC, and the influence of GenAI on demand and pricing will be crucial topics for discussion.
Another report by BNP Paribas India on the Indian IT services sector indicates that certain US macroeconomic indicators are beginning to reflect a slowdown, increasing the risk of stagflation or potentially a recession.
Within our large-cap coverage, we anticipate a slight decline of approximately 1 percent quarter-on-quarter in constant currency revenues. Conversely, our mid-cap coverage is expected to show stronger growth, led by Persistent Systems. We forecast that EBIT margins will largely remain stable quarter-on-quarter for most companies, although some may experience compression due to deal ramp-downs and wage increases. We observe that firms are adopting a cautious approach in their FY26 forecasts, as noted in the BNP Paribas India report.
