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IT Sector's Mixed Outlook: Early Demand Recovery Amid Poor 2026 Visibility

The Indian IT services sector is showing tentative signs of demand stabilization according to Goldman Sachs. Major firms reported 1.5% sequential revenue growth with positive headcount additions after several quarters of decline. However, visibility into calendar year 2026 remains poor due to cautious client spending and AI-driven productivity impacts. The sector expects muted 1.1% growth in FY26 before improving to 5.4% in FY27 as recovery gains momentum.

Key Points: Goldman Sachs Reports India IT Demand Stabilisation Signs

  • Sector shows 1.5% sequential revenue growth across major IT firms
  • Headcount additions turn positive after multiple quarters of decline
  • FY26 growth projected at muted 1.1% due to client spending caution
  • AI productivity gains becoming mainstream may keep sector multiples depressed
3 min read

IT sector sees early signs of demand stabilisation but visibility into CY26 remains poor: Goldman Sachs

Goldman Sachs notes early IT demand stabilization with 1.5% QoQ growth, but warns of poor CY26 visibility and AI productivity impacts on sector multiples.

"While there are early signs of demand stabilisation, visibility into CY26 remains poor - Goldman Sachs Report"

New Delhi, October 20

The information technology (IT) services sector in India is showing tentative signs of demand stabilisation, even as visibility into calendar year 2026 remains weak, noted in a report on India's IT services by Goldman Sachs.

"While there are early signs of demand stabilisation, visibility into CY26 remains poor, and company commentary suggests AI-related productivity pass-throughs may be becoming more mainstream, which may keep multiples depressed" said the report

The report says that, according to the latest quarterly analyses, all major IT firms reported sequential revenue growth, with the sector expanding 1.5 per cent quarter-on-quarter. Growth trends and deal activity suggest that the December 2025 quarter could see a continuation of this positive momentum, with an estimated 1.7 per cent sequential rise in services revenue.

For the full financial year 2026, the sector's revenue growth is expected to remain muted at around 1.1 per cent year-on-year, improving to about 5.4 per cent in FY27. The report attribute the sluggish outlook to cautious client spending amid macroeconomic uncertainties and the ongoing impact of artificial intelligence (AI)-driven productivity gains, which are beginning to compress traditional growth avenues.

"However, our full year FY26 growth estimate of +1.1 per cent YoY (+10 bps vs earlier) and FY27 estimate of +5.4 per cent YoY (-10 bps vs earlier) are largely unchanged." said the report

Operating margins improved across most players in the second quarter of FY26, aided by currency tailwinds and internal efficiency programs. Headcount additions turned positive after several quarters of decline, signalling early signs of recovery in hiring, "Headcount trends in 2Q were better than 1Q for most" noted the report

Large deal activity remained strong during the September quarter, with total contract values indicating renewed client confidence in long-term digital and efficiency programs. However, the pricing environment continues to be competitive, and project ramp-ups are proceeding at a measured pace. The sector's revenue guidance for the coming quarters implies a moderate 0.5-2.5 per cent sequential growth trajectory, reflecting a cautiously optimistic tone.

While the sector's fundamentals remain intact, the report caution that the medium-term recovery will depend on a revival in global discretionary IT spending and how quickly AI-led productivity benefits stabilise. Growth in FY27 is expected to improve to mid-single digits, supported by sustained deal pipelines, margin efficiency, and potential rebound in key verticals such as financial services, healthcare, and manufacturing.

However, despite these green shoots, the industry continues to grapple with subdued demand visibility, client budget rationalisation, and a shift in technology spending priorities. As a result, most forecasts remain conservative, with expectations that meaningful acceleration in demand could emerge only beyond the next fiscal year.

- ANI

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Reader Comments

R
Rohit P
Finally some positive news! My brother just got placed in TCS after struggling for months. The headcount turning positive is a good sign for all engineering graduates. Hope this momentum continues 🙏
S
Sarah B
Working in IT recruitment, I can confirm we're seeing more positions opening up compared to last year. However, the requirements have changed significantly - companies now want AI/ML skills along with traditional programming. The skill gap is real and candidates need to upskill urgently.
A
Arjun K
The 1.1% growth projection for FY26 is quite disappointing. With India's IT sector being such a major employment generator, we need stronger growth to absorb the lakhs of engineering graduates passing out every year. The government should provide more incentives for domestic IT adoption to reduce dependency on foreign clients.
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Meera T
AI productivity gains are a double-edged sword. While they make operations efficient, they're also reducing the number of people needed for the same work. Companies need to focus on reskilling employees rather than just cutting costs. The human element cannot be ignored in this transition.
V
Vikram M
The positive deal activity mentioned in the report gives me hope. Large contracts mean sustained business for the next few years. As a small IT services provider, we're already seeing trickle-down effects with subcontracting opportunities increasing. Better days ahead! 💪

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