IT Q1 earnings preview: From Gen AI to hiring trends — Five key factors to watch

Analysts expect overall muted revenue growth for Tier-I IT firms, with Kotak Institutional Equities expecting a sequential decline of 1-2 percent in constant currency (CC) terms. Infosys and LTIMindtree are seen as relative outperformers among large caps, aided by deal ramp-ups and acquisition-led contributions.

Midcaps such as Persistent Systems, Mphasis, and Coforge are projected to post sequential growth in the 2-4 percent range, supported by a stronger pipeline in BFSI and healthcare verticals.

The pressure from delayed discretionary spending persists, although some verticals like BFSI, healthcare, and energy are showing early signs of recovery. Meanwhile, manufacturing and hi-tech continue to remain under stress.

“The IT sector is expected to post mixed revenue growth in Q1, with tier-1 reporting muted CC revenue growth while mid-tier is expected to deliver strong growth,” HDFC Securities Institutional Equities said in its pre-earnings note.

Last month, world’s largest IT services company Accenture CEO Julie Sweet said macroeconomic uncertainty remains much higher than in 2024, with clients grappling simultaneously with economic and geopolitical risks.

Margin watch

Operating margins will be closely watched out as IT firms balance with wage hikes, weaker revenue performance, and ongoing investments in new capabilities such as artificial intelligence.

Brokerage Kotak expects margin headwinds across large caps, except Infosys, which may hold margins steady aided by operating efficiencies. For midcaps, margins could improve slightly on the back of operational leverage and currency tailwinds.

Infosys is expected to maintain its EBIT margin guidance of 20-22 percent and might narrow its revenue growth guidance band. HCLTech is likely to reiterate its 2-5 percent growth guidance and EBIT margin range of 18-19 percent.

“We expect margins to remain range bound with around -50 basis points (bps) to +50 bps QoQ movement across our coverage universe. Our view is premised on the headwinds stemming from the absence of support from revenue-growth leverage and depreciation of INR against USD,” ICICI Securities said in its pre-earnings note.

Moreover, companies are also leveraging AI to improve productivity by rationalising delivery structures and span of control, the brokerage added.

Demand outlook

Though demand uncertainties and slowdown persists, the silver lining has been that the situation has been slightly better than expected, analysts said.

According to analysts at BNP Paribas, management commentary, deal wins, and lateral data indicate that the demand environment has been largely steady in recent months.

“Our global economists think that while the US economy will slow down in 2025–26, it will avoid recession. Also, ACN’s 4QFY25 guidance at the upper end implies a recovery in organic growth, and management spoke of improving pricing and client discussions to have moved to ‘focus’ and then ‘leapfrog’ after a temporary pause,” analysts said in a earnings preview note.

However, the near-term risks from any escalation in trade tensions remain.

HDFC Securities concurred, adding that despite US tariff measures and broader macroeconomic challenges likely to limit discretionary spending, the “demand deterioration has been lower vs expectation at the start of the quarter”.

“The deal pipeline remains robust, particularly in areas like cost optimization, infrastructure modernization, and AI initiatives,” the analysts at HDFC Securities said.

Gen AI, AI-led deal pipeline

Generative AI (Gen AI) remains an important growth lever, with several IT firms doubling down on related services and solutions.

According to BNP Paribas and Elara Securities, companies such as Tata Consultancy Services (TCS), Infosys, and Wipro have witnessed strong traction in Gen AI-led deal discussions and pipelines.

However, apart from Accenture and TCS, most Indian IT firms have yet to start quantifying Gen AI revenues.

The Street will watch for commentary on client adoption trends, proof-of-concept conversions, and early revenue impact from these emerging services.

After the advent of Gen AI, India’s top IT firms are leaning towards IP-led growth as the nascent technology continues to shrink the workforce pyramid. What used to be a heavy-bottomed pyramid is gradually morphing into a leaner hourglass, with automation consuming routine work at the base.

Hiring trend, wage hike cycle

While the top five IT services majors including TCS, Infosys, HCLTech, Wipro and Tech Mahindra together are likely to add about 80,000 - 84,000 fresher jobs in FY26. However, though some had set out clear hiring targets, others including Tech Mahindra and HCLTech shied away from sharing full year numbers.

Quarterly hiring plan and wage hike cycle updates will be watched out for given the uncertain demand environment. Though on the hindsight, several top IT firms such as TCS and Cognizant have announced new campuses at various locations in India.

Last quarter, HCLTech said it will start sharing hiring numbers on a quarterly basis, planning onboard about 2,000 freshers each quarter. TCS plans to add over 42,000 freshers, Infosys more than 20,000 and Wipro about 10,000 but will closely watch the uncertain demand environment to decide.

Commentary on wage hikes and increments too will be crucial as one of the biggest employers in the country, TCS, last quarter said it will be delaying its appraisal cycle that usually happens starting from April.