Brokerages are unanimous that India’s information technology (IT) services sector will deliver another muted performance in the quarter ended September 30, 2025, with revenue growth largely flat and client spending still subdued.
Where they differ is on how much margin relief companies can extract and whether early adoption of Generative Artificial Intelligence (AI) is already beginning to erode pricing power.
The Street also expects the tepid quarter to play out against a backdrop of macroeconomic uncertainty and higher US visa costs.
Moreover, companies expect client spending to remain tight, and weakness in engineering, research, and development (ER&D) to persist.
All stakeholders will eagerly await the management commentary this quarter.
Here are the five themes to watch out for in Q2FY26.
Muted Revenue
There’s unanimity that Q2 will not be a turnaround quarter.
Most brokerages peg Tier-I growth between -0.9 percent and 0.6 percent in constant currency, while Tier-II firms may fare slightly better at -1.3 percent to 2.4 percent.
Brokerage firm Axis Securities also projects overall dollar revenue growth in the 0-3 percent range, supported by BFSI, hi-tech, and healthcare, but tempered by weakness in consumer, retail, telecom, and auto.
Most believe that a stronger recovery is more likely in H2FY26 as deal ramp-ups and utilisation improve, however, brokerage Motilal Oswal Financial Services is cautious, flagging that the next tech upcycle may still be a year away.
“As clients reel under macro and tariff uncertainty, we believe there is hesitation to commit additional dollars to any large initiatives. We expect Q2 numbers to reflect this,” brokerage firm Motilal Oswal said in its pre-earnings research note.
Additionally, the hitherto growth driver -ER&D vertical- is expected to stay weak, with all brokerages citing tariff-led uncertainty and delayed original equipment manufacturer (OEM) decision-making.
Also, read: Wipro to acquire ER&D firm Harman Connected Services for $375 million
“We expect the ER&D space to remain under pressure in 2QFY26, primarily due to near-term capex moderation by Western OEMs and slower EV/SDV (electric vehicle/software-defined vehicle) project ramp-ups,” brokerage firm Motilal Oswal said.
Margins
Operating margins are likely to face pressure from rising costs, including higher salaries, attrition, and talent acquisition for specialised roles.
Analysts highlight that while revenue may grow modestly, margin expansion is constrained by these factors.
“Margins are likely to remain range-bound due to wage hikes, changes in delivery models, and higher investments towards the AI transition,” brokerage Axis Direct said in its pre-earnings note.
Companies with efficient delivery models and higher offshore utilisation are expected to mitigate some of the pressure.
AI Differentiator
Brokerages say Gen AI is both a growth lever and a source of pressure.
Cloud migration and AI-driven deals are helping sustain deal flow, with dedicated Gen AI units and tangible use cases beginning to take shape. However, some caution that productivity-led gains are already driving pricing deflation in renewals, eroding toplines.
“We lower our USD revenue growth for our coverage universe by around 50-450 basis points for FY27 as we build in higher deflation in renewals due to AI-led productivity gains,” brokerage Nomura said in its research note.
Nevertheless, brokerages indicate that AI-led services could help offset challenges in other service lines and support long-term growth.
Management commentary on AI monetisation versus pricing compression will be closely watched.
Layoffs: Industry-wide phenomenon?
While India’s largest IT company, Tata Consultancy Services (TCS), set the ball rolling, there will be questions about whether more companies will follow suit, particularly in the middle-layer.
In July, Moneycontrol exclusively reported that the IT behemoth will be letting go of 2 percent of its workforce, or roughly over 12,000 employees, over the next year, in a bid to become more agile and future-ready amid rapid disruptions in technology.
More recently, the world’s largest IT firm, Accenture, announced plans to reduce its workforce, citing the limited viability of re-skilling employees for the skills it requires.
Management commentary on potential layoffs will be widely watched out for.
H1B Visa Fee Hike
Although IT companies have clarified earlier that their dependency on H-1B visas are reducing, brokerages say that H1B visa regulations continue to influence workforce planning for IT companies.
Therefore, IT firms will have to adjust their onshore-offshore delivery mix in response to visa availability.
Nonetheless, brokerage Nirmal Bang adds that while H1B-related constraints are a consideration for staffing, they are not expected to have a significant near-term impact on revenue growth.
To sum it up, with the topline largely uninspiring, the market will look past the numbers to management commentary on demand recovery, regulatory costs, and AI monetisation.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!