Muted Q1 awaits IT on sluggish spends and deal momentum

India’s $280 billion IT services industry is expected to post muted first-quarter performance, weighed by continued caution in technology spending by corporations that is leading to slow decision-making and sluggish deal momentum, according to analysts.

Among the top six, industry leader Tata Consultancy Services, HCLTech, Wipro and Tech Mahindra are projected to post low single-digit to flat revenue growth sequentially in the April-June quarter, and even a decline year-on-year in constant currency.

The second and sixth biggest by revenue — Infosys and LTIMindtree — are estimated to grow revenue by around 2%, aided by relatively better deal execution, at least three analyst reports showed.


TCS will announce its results on July 10, starting the earnings season for the IT industry.

Meanwhile, the second-tier firms are expected to see a divergence in growth performance, with Coforge, Persistent Systems, Hexaware and Mphasis projected to post strong revenue growth. L&T Technology Services (LTTS), Birlasoft, Cyient, Tata Technologies and Tata Elxsi are likely to witness a ripple effect of the tariff-led slowdown, especially from the logistics, automotive and manufacturing verticals and to an extent in retail.

“We believe that the quarter will be a mixed one,” Kotak Institutional Equities said in a report. Mid-tier IT services providers will report strong growth, but large IT firms and engineering, research and development (ER&D) companies will disappoint, it said.

“The auto segment deal pipeline across companies is strong, though deal conversion timelines are elongated and much slower than expected. The ramp-up of auto ER&D deals is much slower than expected,” the report added.

The BFSI recovery trend continued in Q1 as analysts pointed to strong financial numbers, legacy software modernisation, digital transformation and no significant impact from tariff impositions.

Deals, which continue to be centred on cost take-out and vendor consolidation as clients continue to prioritise cost savings, saw moderation in closures after the March quarter with an estimated 10-15% of contracts now estimated to be delayed or under review, ET reported in May. Further, the patchy financial and hiring numbers of global IT major Accenture two weeks ago suggested higher uncertainty in deal making in calendar year 2025.

On the outlook, an Emkay Research note forecasts Infosys and HCLTech to narrow their FY26 revenue growth guidance in constant currency to 1-3% and 3-5%, respectively, while retaining their operating margins guidance of 20-22% and 18-19%. “We expect Wipro to give guidance of -1% to +1% growth for Q2FY26E,” it said.

“Companies have stretched every lever to defend margins, including tight control on travel, other discretionary costs and in a few cases pulling back variable compensation. Companies may need discretionary spending recovery to defend margins in the medium term,” the Kotak report said.

Despite tailwinds from the currency movements, overall margins will remain a mixed bag. In large caps, TCS may witness weaker utilisation due to ramp-down of its large government project of BSNL; Infosys’ margins may decline from the previous quarter due to salary hikes for senior employees and higher travel costs; and HCLTech may see seasonal factors of annual productivity pass-through to clients. While Wipro may face client-specific issues increasing its provision for doubtful debt hitting margins, Tech Mahindra and LTIMindtree could see improvements from ongoing cost rationalisation exercises, a Nomura report on the IT sector said.

Among mid-cap firms, Coforge is likely to post the strongest sequential margin improvement of 40 basis points (0.4 percentage point). Mphasis and Persistent are expected to post flat margins, it said.

There are early signs of demand stability in the BFSI and retail segments and productivity gains from GenAI offer a potential turnaround signal, analysts said. This, and stable cash flows of companies, is indicative of the BSE IT index rising 3.7% over the last month and 7.7% in the last three month after a dip in early April.