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Indian tech Sector Q1FY26 Preview – Cautious Optimism for Near-Term Growth
Indian tech Sector Q1FY26 Preview – Cautious Optimism for Near-Term Growth

July 9, 2025

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Indian tech industry - Q1FY26 earnings’ expectations

Ahead of the Q1FY26 earnings announcement by the Indian tech companies, growth is expected to remain soft during the quarter, similar to Q4FY25. While Headwinds including macro uncertainty, delayed deal ramp-ups, soft demand in select markets and slower decision making continue to impact the industry. However, notable deal activity, with Gen AI and AI-led efficiency improvements present a significant upside potential for the quarter.

What Does This Signify?

Indian tech companies are entering a phase of cautious optimism. While demand remains soft, tech companies are adjusting to a slower pace of growth amidst global macro uncertainty.

  • Top-tier companies expected to remain under pressure, while mid-tier players to gain an edge through agility and domain focus.
  • AI-led efficiencies and cost control are helping protect margins despite revenue softness.
  • The key near-term priority is to drive productivity from existing resources and focus on strategic AI and cost optimization deals.

 

Q1FY26 Indian Tech Sector – Earnings Preview Snapshot

Revenue Outlook – Continued divergence between Top and Mid-tier tech companies expected
  • Top-tier: Tepid PerformanceExpected to report flat/declining revenue in constant currency terms, impacted by:
    • Delay in deal ramp-ups and ramp down of large deals (Ex. TCS – BSNL)
    • Increased caution amongst clients due to tariff uncertainty.
    • Seasonal softness and macro headwinds in manufacturing and retail vertical.

 

  • Mid-tier: Outperforming PeersExpected to grow faster than top-tier led by:
    • Strong ramp-up of large deals like (Ex. Coforge – Sabre deal)
    • Higher exposure to BFSI and tech verticals, which are relatively resilient.
    • Faster execution and response to high-growth segments.

 

  • Cross Currency impact: Positive for the industryCross-currency tailwind is expected to aid dollar revenue growth for Q1.
Stable Margins
  • Margins likely to remain stable despite revenue pressure, driven by:
    • Limited/deferred wage hikes, and controlled variable pay: Deferment of wage hikes by select companies (Ex. TCS deferred wage hikes for FY26. Infosys rolled out wage hikes for select senior employees
    • Continued focus on operational efficiency, increased cost control, and improved utilisation.
    • Positive management commentary on AI-led productivity gains and increasing wallet share.
Key markets – BFSI the only positive
  • BFSI: Remains relatively strong with robust demand across tech companies.
  • Manufacturing and Retail: Facing headwinds from macro and tariff uncertainties; demand remains subdued.
  • North America & Europe: Clients remain cautious, especially in retail and manufacturing sector (incl. auto).
  • ER&D: Growth expected to soften, due to slowdown in the automotive and hi-tech segments. While healthcare and plant engineering vertical expected to show positive growth momentum.
Robust Deal Momentum
  • Deal pipeline expected to remain strong, but closure rate to remain slow due to uncertainty.
    • Deals focus area: Cost optimization, infrastructure modernization, and AI initiatives.
Hiring Trends – Focus on utilising existing capacity
  • Lateral hiring to remain muted—mostly on a backfill position basis.
  • Fresher onboarding trends to remain a key watchpoint, as most companies are adhering to last year’s hiring targets
  • Focus on improving utilisation instead of headcount growth.

References


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Prajwal Pandey
Research Analyst

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