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Indian IT Sector Rebounds: Tier-2 Techs Lead Q2 Growth Amid Recovery

The Indian IT sector has returned to positive sequential growth in Q2FY26 after two quarters of decline. Tier-2 technology companies continued to outperform their larger counterparts in both growth and margins. Headcount additions picked up modestly during the quarter, signaling early signs of demand stability in the sector. The recovery was supported by margin improvements from currency benefits and the potential for Gen-AI-driven spending to further boost business cycles.

Key Points: Indian IT Sector Q2 Recovery Led by Tier-2 Tech Companies

  • Tier-1 companies including Infosys and Wipro reported growth broadly in line with expectations
  • Tier-2 players like Coforge and Persistent Systems led sequential growth performance
  • Margins improved across sector aided by currency tailwinds and delayed wage hikes
  • Headcount addition picked up modestly with Infosys adding 8,200 employees in Q2
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Indian IT sector shows sequential recovery in Q2FY26; tier-2 techs lead growth

Indian IT sector shows sequential growth recovery in Q2FY26 with tier-2 companies outperforming in growth and margins, while headcount additions signal demand stability.

"Tier-2 players such as Coforge and Persistent Systems led sequential growth - Axis Capital Report"

New Delhi November 15

The Indian IT sector witnessed a return to positive sequential growth in Q2FY26, driven by Tier-1 techs reversing declines seen over the past two quarters, while Tier-2 techs continued to outperform both in growth and margins, according to sector commentary, according to a report by Axis Capital.

The sectoral update report added that Tier-1 companies, including Infosys and Wipro, reported growth broadly in line with expectations, with Tech Mahindra posting a slight upside surprise.

The report added that tier-2 players such as Coforge and Persistent Systems led sequential growth, while BPO-focused firms like eClerx and Sagility delivered steady performance.

Within the ER&D segment, Tata Technologies surprised positively, driven by non-automotive business, although the broader segment faced challenges due to continued automotive drag, the sectoral update report added.

It further added that the margins across the sector showed improvement, aided by currency tailwinds, delayed wage hikes, and the absence of seasonal costs. Offshore-centric BPO firms saw the highest margin gains, while ER&D companies, except Tata Tech, fell short of expectations due to weak growth. Notably, HCLTech maintained an EBIT of 17-18 per cent, Infosys at 20-22 per cent, and Sagility slightly upgraded its adjusted EBITDA margin outlook following strong H1 performance.

Headcount addition picked up modestly in Q2, signalling early signs of demand stability. Tier-1 techs, excluding TCS, saw sequential hiring gains, led by Cognizant (6,000) and Infosys (8,200, the highest increase since Q2FY23). Freshers hiring is expected to rise further in FY26 to manage average resource costs, mirroring trends among global peers like Capgemini.

The report notes potential near-term benefits from Gen-AI-driven spend of the IT companies, which could further support business cycle improvement.

- ANI

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Reader Comments

R
Rohit P
Tier-2 companies showing stronger growth than Tier-1 is interesting. Coforge and Persistent have been quietly building solid businesses. This might be a good time for investors to look beyond the big names.
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Sarah B
While the recovery is welcome, I'm concerned about the quality of jobs being created. Are these mostly fresher positions with lower pay scales? The industry needs to focus on upskilling existing employees too.
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Arjun K
The Gen-AI mention is crucial! Our company has started multiple AI initiatives and clients are showing genuine interest. This could be the next growth driver for Indian IT. Good to see the sector adapting to new technologies. 🤖
M
Michael C
Impressive margin performance by Infosys at 20-22%! This shows strong operational efficiency. The currency benefits and delayed wage hikes definitely helped, but let's see if they can sustain this when normal cost structures return.
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Kavya N
As a fresher who joined this year, the hiring pickup is a relief! Many of my batchmates were worried about job prospects. Hope the trend continues and more companies follow Infosys and Cognizant in campus recruitment. 🎓

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