IT Firms to Report Soft Growth in Q1, BFSI Continues to Shine Investors and analysts will closely watch out for the FY26 revenue/margin guidance; CY25 IT budget and impact on client spending behavior amid macro uncertainties; recovery in discretionary spending; deal intake and pipeline, among others.
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Indian IT services firms are likely to post another soft quarter, with continued caution around discretionary spending, delayed decision-making, and tighter project scrutiny weighing on deal ramp-ups and execution, according to a pre-earnings report by Emkay Research.
Reported USD revenue may see modest QoQ growth, supported by currency tailwinds from a weakening USD against major global currencies such as the EUR, GBP, and Rupee.
Tier-I companies, except Infosys and LTIMindtree, are expected to report muted constant currency sequential revenue growth in Q1. Tier-I players are expected to post constant currency revenue growth of -2 to 2 per cent, while reported USD revenue growth would be aided by 90–220 basis point cross-currency tailwinds. Tier-II companies may see constant currency revenue growth of -2.5 to 7 per cent, with tailwinds of 40–210 basis points on reported USD revenue.
Among verticals, BFSI continues to show encouraging signs, while Communication and Manufacturing (particularly Auto) remain weak. Growth trends continue to be mixed across all other verticals like Hi-tech, Retail, and Healthcare, the brokerage firm said. Performance of ER&D companies is likely to be impacted by the slowdown in Auto and the tariff-related uncertainties.
Emkay expects Infosys and HCLTech to narrow their FY26 revenue growth guidance to 1-3 per cent and 3.5 per cent respectively on an annual basis in constant currency, while retaining their EBIT margin guidance of 20-22 per cent and 18-19 per cent, respectively. It expects Wipro to give guidance of -1 to +1 per cent growth for Q2FY26.
Key Monitorables
Investors and analysts will closely watch out for the FY26 revenue/margin guidance; CY25 IT budget and impact on client spending behavior amid macro uncertainties; recovery in discretionary spending; deal intake and pipeline; pace of decision-making, project deferment/cancellation, and any client specific ramp-downs.
Other factors to monitor include demand trends in key verticals like BFSI, Retail, Manufacturing, Hi-Tech, Communications; pricing environment; headcount change owing to constrained macro indicators and productivity gains from AI; and adoption and integration of GenAI.
According to Emkay Research, deal intake is expected to remain healthy on the back of cost takeouts, legacy modernization, and vendor consolidation. Such deals are being prioritized, as enterprises aim to save costs and reallocate budgets toward RoI-justified outcomes. The deal pipeline remains healthy across companies.
"Pace of decision making, revival in discretionary spending, and timely ramp
up of signed deals could lead to better correlation between revenue and deal intake, thereby driving uptick in revenue growth," the report said.
AI continues to gain strong momentum within the Indian IT services sector, influencing both internal operations and client engagements. "With the rapid evolution of Gen AI, Indian IT companies are intensifying their focus on AI-readiness. This includes strategic investments in talent acquisition, large-scale reskilling and upskilling programs, and the integration of AI into existing service offerings," the report said.
A step ahead from the past, the nature of AI engagements is shifting – moving beyond POC (proof-of-concept) work and toward scaled implementations, particularly in areas like customer service, software development automation, and enterprise productivity tools.
However, despite the rising interest and an expanding pipeline of Gen AI opportunities, AI's direct contribution to revenue remains limited at this stage. Most AI-related spending continues to come from reallocations within existing IT budgets rather than incremental budget expansion, indicating that AI spend is currently replacing, albiet not yet adding to, the overall tech spend.
"Looking ahead, as clients gain more clarity on Gen AI's business impact and use cases mature, we expect AI monetization to improve gradually. Indian IT firms, which can effectively scale up Gen AI offerings, link such offerings to measurable business outcomes, and differentiation through domain expertise will be better positioned to capture the long-term value," the report said.
