Indian IT sector to see mixed Q1FY26 performance; mid-tier firms to outpace tier-1: Report

ANI July 5, 2025 359 views

The Indian IT sector is poised for a complex first quarter in FY26 with mixed performance expectations. Mid-tier firms are projected to show stronger results compared to tier-1 companies, driven by robust deal pipelines and generative AI initiatives. Economic challenges like US tariff measures and discretionary spending constraints are present but less severe than initially anticipated. The sector remains resilient, with cross-currency tailwinds potentially supporting USD growth.

"There is a huge cross-currency tailwind in the quarter which will result in strong USD growth QoQ" - HDFC Securities Report
New Delhi, July 5: The Indian Information and Technology (IT) sector will deliver a mixed performance in the first quarter of Financial Year (FY) 2026, with tier-1 companies likely to post muted revenue growth, while mid-tier firms are set to outperform, according to a report by HDFC Securities.

Key Points

1

Mid-tier IT firms expected to outperform tier-1 companies

2

Generative AI driving significant growth across sector

3

Cross-currency tailwind estimated between 50-300 basis points

4

Deal pipeline remains robust despite economic uncertainties

The report further added that despite ongoing global economic uncertainty and subdued discretionary spending due to US tariff measures and broader macroeconomic challenges, the deterioration in demand has been lower than initially anticipated. This has allowed companies to maintain their full-year FY26 guidance.

"There is a huge cross-currency tailwind in the quarter which will result in strong USD growth QoQ," the report added.

"Factors such as US tariff measures and broader macroeconomic challenges may limit discretionary spending, but the demand deterioration has been lower vs expectation at the start of the quarter," the report added.

The report added that the deal pipeline remains robust for the IT firms, particularly in areas like cost optimization, infrastructure modernization, and AI initiatives.

Generative AI remains a significant growth driver, with many companies moving beyond proof-of-concept (PoC) to full-scale deployments -- a trend underscored by Accenture's recent strong Gen AI bookings, the report added.

The report stated that a major cross-currency tailwind which is estimated between 50 to 300 basis points, will aid the sector's reported revenue growth in USD terms for Q1.

However, in constant currency terms, tier-1 players are expected to show a revenue growth range of -2.8 per cent to +1.5 per cent quarter-on-quarter (QoQ), and -3.4 per cent to +4.5 per cent year-on-year (YoY).

In contrast, mid-tier IT firms are forecast to deliver stronger results, with QoQ CC growth ranging from +3.7 per cent to -3.4 per cent.

However, some mid-tier firms are likely to face headwinds, the report added.

The HDFC Securities report expressed confidence in the sector and added that despite near-term pressures, the sector continues to see a robust deal pipeline.

As the sector navigates economic headwinds and changing client priorities, Q1FY26 earnings will provide critical insights into the strength and resilience of India's IT services industry.

Reader Comments

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Priya S
As someone working in a mid-tier IT firm, I can confirm we're getting more projects than last year. But the report misses one point - salary hikes are still very modest despite better performance. Companies should share profits with employees too!
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Aman W
The cross-currency benefits are temporary. We need to focus on real value addition through AI and automation rather than relying on forex fluctuations. Tier-1 companies must innovate faster to stay relevant.
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Sarah B
Working with both Indian and US tech firms, I see Indian mid-tier companies becoming more competitive in quality while maintaining cost advantage. The global perception is changing - they're no longer seen as 'cheap' but as 'value for money'.
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Karthik V
While the report is optimistic, we shouldn't ignore the -3.4% YoY figures for some companies. The US recession fears are real and could hit us hard in coming quarters. Need to diversify beyond American markets.
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Nisha Z
The Gen AI push is exciting! 🚀 But are we investing enough in R&D? Most Indian IT firms still implement solutions developed elsewhere. Time to move from service providers to product creators. #AtmanirbharBharat
D
David E
Interesting analysis. From global investor

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Tags:
Indian IT Sector HDFC Securities Tech Earnings Generative AI Tier-1 IT Companies Q1FY26 Performance