Synopsis:
The IT sector is set for a muted Q2FY26, with Tier-1 revenues largely flat and margins stable. Weak discretionary spending and slow deal conversion temper growth, despite selective strength in ER&D, cloud, and Manufacturing.
Tier-1 IT companies face cautious growth, with BFSI (Banking, Financial Services, and Insurance) weak and Retail/Hi-Tech muted, while Manufacturing and Energy show resilience. Tier-2 firms struggle with margin pressures. Earnings outlook varies, highlighting pockets of strength amid a subdued sector environment.
Preview
The IT sector is expected to report a muted quarter with no significant improvement compared to the previous quarter. Q2FY26 revenue for Tier-1 IT companies is projected to be largely flat at -0.4% quarter-on-quarter in dollar terms, while margins are expected to remain broadly stable. Despite large deal wins continuing, conversion into revenue is slow, suggesting meaningful growth may only materialise in H2FY25.
Vertical-wise, BFSI remains weak, Retail and Hi-Tech are muted, while Manufacturing and Energy show relatively better performance. Tier-1 IT companies like Infosys, TCS, Wipro, and HCLT face a cautious outlook due to weak discretionary spending, whereas Tier-2 IT companies continue to experience margin pressure despite selective outperformance in ER&D and digital segments.
On earnings, Infosys and Wipro may underperform peers, TCS is expected to hold ground, and HCLTech is supported by ER&D and cloud initiatives. Overall, the sector outlook is cautious with selective areas of strength.
TCS has cancelled its scheduled press conference for October 9, 2025, due to the date coinciding with the anniversary of Ratan Tata, with analysts expecting muted sequential growth due to a subdued contribution from large domestic projects and cautious global tech spending.
TCS’s Revenue is likely to rise only around 2.7% quarter-on-quarter to ₹65,150 crore, and profit to remain nearly flat, while margins may be steady as the company manages the impact of wage hikes.
HCLTech will report next week, and both companies’ results are being closely watched for deal win momentum and updates on AI-led investments amid a subdued sector outlook.
The IT sector is likely to see only modest growth, with some strength in areas like cloud, ER&D, and Manufacturing. Overall, slow deal conversions and cautious spending may keep growth limited for now, with improvement expected later in the year.
Written by Manideep Appana
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
