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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.
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. (ANI)
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