Indian IT Sector: Mid-Tier Firms Shine Amid Mixed Q1 Outlook for FY26

According to a recent report by HDFC Securities, India's Information and Technology sector is projected to experience a mixed performance in the first quarter of Fiscal Year 2026. While tier-1 companies are expected to report muted revenue growth, mid-tier firms are set to exceed expectations.

The report highlights that despite global economic uncertainties and subdued discretionary spending due to US tariffs and broader macroeconomic challenges, the demand deterioration has been less severe than initially feared. Companies have managed to maintain their full-year guidance for FY26, thanks in part to a significant cross-currency tailwind that is predicted to enhance USD growth quarter-on-quarter.

The robust deal pipeline, particularly in areas such as cost optimization, infrastructure modernization, and AI initiatives, remains a bright spot for IT firms. Generative AI is pointed out as a key growth driver, with many businesses transitioning from proof-of-concept to full-scale deployments. This trend is exemplified by Accenture's recent strong bookings in generative AI.

While the report indicates that the sector's reported revenue growth in USD terms will benefit from a cross-currency tailwind measuring between 50 to 300 basis points, it also notes a more modest performance in constant currency terms. Tier-1 companies are forecasted to have revenue growth in ranges of -2.8% to +1.5% QoQ, and -3.4% to +4.5% YoY, whereas mid-tier firms are expected to post stronger results.

The HDFC Securities report maintains confidence in the IT sector despite short-term pressures. It underscores the resilience and strength of India's IT services industry, even as it navigates economic headwinds and evolving client priorities.

(With inputs from agencies.)