IT Firms Face Muted Q3 Revenue Growth, Tier 2 Outperforms: Report

The report comes ahead of the Q3FY26 earnings season, which is set to begin next week.

The report noted that revenue growth during the quarter is likely to be modest, though resilient, supported by healthy traction in select verticals such as Banking, Financial Services and Insurance (BFSI) and Technology. The ramp-up of recently signed deals is also expected to aid performance.

However, overall growth is likely to remain subdued, with Tier 2 IT companies expected to outperform Tier 1 players during the quarter.

It stated "Revenue growth to remain muted with select Tier 2 outperforming Tier 1 companies"

According to the report, revenue growth for Tier 1 IT companies in Q3FY26 is expected to be in the range of +0.2 per cent to +1.7 per cent quarter-on-quarter in US dollar terms.

The report highlighted that the Indian rupee depreciated by around 2.1 per cent against the US dollar on a quarter-on-quarter basis during Q3FY26, which is expected to support INR-based reported revenue growth.

At the same time, cross-currency headwinds during the quarter stood at 20-40 basis points for companies under coverage.

On the margin front, the report expects operating margins to remain broadly steady. The 2.1 per cent depreciation of the rupee against the dollar is likely to provide support to margins, even as companies face lower utilisation due to furloughs and a seasonally weak quarter. Q3 is typically impacted by furloughs and a lower number of working days, which affects utilisation levels across the sector.

The report noted that IT companies continue to focus on efficiency measures such as improving the employee pyramid, optimising subcontracting costs, increasing utilisation, and other cost-control initiatives.

These steps are aimed at supporting margin stability, even as companies continue to invest in building capabilities in new-age technologies.

The report added that the demand environment has remained largely unchanged over the past three months.

The focus during the quarter remains on ramping up recently signed deals, which are largely driven by cost optimisation and vendor consolidation.

The report also highlighted that the adoption of AI tools is expected to improve revenue per employee, thereby supporting overall productivity for IT services companies in Q3FY26.

- ANI