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India's IT Sector Revival: How AI Projects Are Fueling H2FY26 Growth

India's IT sector is poised for a gradual recovery in the second half of FY26 according to Centrum Research. The turnaround will be driven by increasing demand for AI-first services and improved client engagement across key sectors. Banking, financial services, and insurance are expected to lead this recovery with strong deal pipelines and modernization programs. While retail and automotive segments remain under pressure, technology and healthcare verticals show promising strength from ongoing digital initiatives.

Key Points: India IT Sector AI Projects Drive H2FY26 Growth Recovery

  • BFSI sector leads recovery with strong deal pipeline and modernization programs
  • Retail and automotive segments face pressure from weak discretionary spending
  • Technology and healthcare show strength from digital transformation initiatives
  • Client appetite remains strong for cloud, data, and AI transformation projects
  • Workforce management stabilizes with low attrition and strategic hiring alignment
  • Margins hold steady despite wage hikes through disciplined cost control measures
2 min read

India's IT sector to improve in H2FY26 on AI-led projects, better client engagement: Report

Centrum Research report predicts India's IT sector recovery in H2FY26 driven by AI-led projects, improved client engagement, and rising discretionary spending across key verticals.

"commentary points to a gradual recovery into H2FY26, anchored in AI-led projects, improved client engagement, and improvement in discretionary spending patterns - Centrum Research Report"

Mumbai, November 10

The Indian information technology (IT) sector is expected to register improved second half of the current financial year, supported by AI-led projects, better client engagement, and an uptick in discretionary spending, according to a report by Centrum Research.

The report highlighted that improved conversion and deal ramps are likely to drive growth in the second half of FY26 (H2FY26). Business momentum is expected to improve progressively through the second half of FY26, driven by the ramp-up of large client engagements and rising demand for AI-first services.

It stated "commentary points to a gradual recovery into H2FY26, anchored in AI-led projects, improved client engagement, and improvement in discretionary spending patterns".

Among key sectors, banking, financial services, and insurance (BFSI) are expected to lead the recovery, supported by a strong deal pipeline and scalable modernisation programs.

However, the retail and automotive segments are likely to remain under pressure due to external policy factors and weak discretionary spending. On the other hand, technology and healthcare verticals showed selective strength, supported by digital programs and infrastructure upgrades.

The report noted that the overall appetite of clients for transformation remains strong, with investments in cloud, data, and AI driving medium-term demand recovery and ensuring sustainable growth in IT services.

The Q2FY26 performance of IT companies reflected a stable but cautious business environment, with modest sequential growth and a selective recovery in key verticals.

Although revenue momentum remained limited, deal activity was healthy as enterprises continued to focus on digital transformation, AI adoption, and improving operational efficiency.

Margins across the sector remained steady, supported by disciplined execution even as companies managed wage hikes and localised restructuring. Client decision-making cycles were slightly elongated, but large deal signings and steady pipeline conversion pointed to sustained strategic demand.

Workforce management also remained stable, with low attrition levels and hiring strategies aligned closely with deal visibility. IT firms continued to emphasise cost control, automation, and optimising employee structures to protect profitability.

Overall, the report concluded that commentary from the sector indicates a gradual recovery in H2FY26, led by AI-driven projects, improved client interactions, and better discretionary spending patterns.

- ANI

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Reader Comments

R
Rohit P
Good to see BFSI leading the recovery. Banking sector has been investing heavily in digital transformation and it's showing results. However, I'm concerned about the retail sector - many small businesses are still struggling with digital adoption.
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Arjun K
While the report sounds positive, I hope this growth reaches tier-2 and tier-3 cities too. Most IT development is still concentrated in major metros. We need more distributed growth to truly harness India's tech potential.
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Sarah B
The focus on AI-first services is exactly what Indian IT needs to stay competitive globally. We've been strong in traditional IT services, but AI is the future. Good to see companies adapting quickly to this shift.
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Michael C
As someone who recently graduated, this gives me hope for job opportunities. The IT sector has been through a rough patch, but AI-led growth could create many new roles. Fingers crossed! 🤞
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Kavya N
The mention of healthcare vertical showing strength is interesting. Post-pandemic, there's been massive digital transformation in healthcare, and Indian IT companies are well-positioned to capture this market globally.
D
David E
While the report is optimistic, I hope companies don't repeat past mistakes of over-hiring during growth phases and then massive lay

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