The Indian IT services sector is poised for modest and steady sequential growth in the second quarter, as companies navigate soft demand, muted mega-deal activity, and pricing pressures, industry observers said.
Tata Consultancy Services (TCS) will kick off the announcements with their Q2 results on October 9.
According to a Kotak Institutional Equities (KIE) report, sequential growth across companies is expected in the range of 0.2–6%.
“We believe that rupee depreciation, combined with cost measures, will ensure steady margins,” the KIE analysts noted.
Infosys, Coforge, and LTIMindtree are expected to report a strong quarter, while Wipro and TCS are likely to trail.
“Unlike earlier quarters, there has been no demand deterioration through this quarter, a positive,” the report added, predicting that all Tier 1 companies would report sequential growth, with Infosys leading at 2% quarter-on-quarter.
Mid-tier companies are expected to maintain robust performance, with growth projected between 1.5–6%.
Coforge is likely to lead with 6% sequential growth, followed by Persistent at 4%. Engineering R&D (ERD) companies, however, may report a moderate quarter, with organic revenue growth ranging from -2.5% to 1.7%, largely due to weak demand in the automotive vertical.
Research firm UnearthInsight expects more muted growth of 0.8 to 1% QoQ, citing continued demand softness and a limited large deal momentum.
Gaurav Vasu, founder and CEO of UnearthInsight, said margins are expected to remain under pressure due to rising geopolitical risks and pricing constraints.
Higher employee costs, driven by investments in AI talent and normalised wage hikes, largely offset each other.
KIE analysts noted that rupee depreciation has provided relief in a quarter affected by pricing pressures and may help companies maintain steady margins, offset deal-related pricing pressure, or fund higher variable compensation.
Tier 1 IT companies, with the exception of HCL Technologies, are likely to report steady year-on-year EBIT margins, while mid-tier companies may see margin expansion, aided by growth leverage and margin discipline.
Wage revision announcements in FY2026 remain limited and may become a focus area.
On technology trends, Vasu said Indian IT is still in a transition phase with AI.
While global peers such as Accenture have announced restructuring initiatives to realign around AI-led services, Indian IT firms are still defining how to build differentiated AI talent and operating structures.
Most are expected to continue emphasising integrated, AI-enabled deals.
Cloud services remain a key growth driver, with enterprises accelerating AI adoption and modernising cloud infrastructure, a large portion of which is still pending, offering a continued tailwind for IT vendors.
Key risks include tariff changes, H-1B visa fee hikes, and the proposed HIRE Act, all of which add to geopolitical uncertainty.
“The extended US government shutdown poses a downside risk to sectoral demand. A prolonged shutdown could dampen retail sector demand by curbing consumer spending and also impact the BFSI vertical,” Vasu warned.
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