Indian IT services companies are expected to report a moderate performance in the December quarter—traditionally a seasonally weak period due to furloughs—with demand remaining stable but largely driven by cost optimisation rather than discretionary technology spending, according to brokerage firms and analysts.
Kotak Institutional Equities said in a note it expects “a moderate performance in a seasonally weak period for IT services companies,” adding that demand over the past few quarters has remained “broadly on expected lines with furloughs at normal levels.”
The brokerage noted that growth in the quarter is likely to be uneven across companies, with tier-1 firms posting low single-digit sequential growth and some reporting flat or marginally negative trends, while pure-play BPO companies are expected to deliver stronger outcomes.
Analysts at JM Financial echoed this view, stating that “3QFY26 is a seasonally soft quarter given furloughs,” with the impact similar to last year and “no change in the demand environment versus the start of the quarter.” The brokerage added that deals continue to be “largely cost efficiency/cost takeout in nature and there is no pick up in discretionary spend.”
In a conversation with AIM, UnearthInsight CEO Gaurav Vasu said the December quarter is expected to see subdued growth, estimating sequential constant-currency revenue growth of 0.6–1.2% for the sector.
He said the impact of furloughs, fewer working days and cautious discretionary spending would weigh on growth, with demand conditions “largely unchanged from the previous quarter.” According to him, revenue momentum during the quarter is expected to be driven mainly by existing deal ramp-ups, while new client decision-making remains limited.
Revenues
On revenue growth, Kotak Bank said it expects organic constant-currency sequential growth for large IT firms such as TCS, Wipro and Tech Mahindra to be in the range of 0.3–0.9%, while Infosys is expected to see a marginal sequential decline due to seasonality.
HCL Technologies is expected to outperform peers, aided by its product portfolio, while mid-tier companies such as Persistent Systems and Coforge are expected to continue leading growth within their cohort.
JM Financial estimates constant-currency revenue growth of 0.2–2.5% quarter-on-quarter for the top six IT companies, and a wider range of outcomes for mid-tier firms, led by Persistent.
The brokerage also highlighted that the banking, financial services, and insurance (BFSI) vertical remains relatively resilient compared with other sectors, while manufacturing, particularly automotive, “continues to be relatively challenged” in the quarter.
Vasu similarly noted that BFSI and healthcare are likely to be relative growth drivers, while manufacturing, telecom and automotive may continue to lag, with Europe and APAC showing better momentum compared with a softer US market.
Margins
Margins are expected to remain largely rangebound across the sector. Kotak said EBIT margins, measuring core profitability as a percentage of revenue, are likely to stay stable for most companies, “partly aided by rupee depreciation,” even as wage hikes and limited incremental margin levers constrain profitability.
The brokerage cautioned that wage increases could impact margins by 30–100 basis points at some firms, while noting that it has not factored in any impact from potential provisions under India’s new labour codes, effective November 2025.
JM Financial similarly pointed out that a 1.4% sequential depreciation in the rupee is likely to provide margin support, though this would be “partly offset by lower growth given seasonally soft quarter and wage hikes (in certain cases).”
Vasu said EBIT margins at the industry level are expected to remain in the 15–16% range, with pressure from furlough-led utilisation softness and wage hikes partly offset by cost optimisation efforts and favourable cross-currency movements.
Both brokerages flagged deal activity as an area of relative strength, even as near-term revenue conversion remains gradual. Kotak said deal wins are expected to improve, “aided by large and mega-deal wins,” while stressing that demand continues to be driven by vendor consolidation rather than net-new spending.
JM Financial noted that Infosys is expected to report a sharp increase in large deal total contract value during the quarter, while adding that the key focus will remain on deal conversion rather than headline bookings.
Vasu said management commentary on CY26 client budgets, deal pipelines and AI-led opportunities will be closely watched.
Looking beyond the quarter, Kotak said the setup for FY27 is “interesting,” as stabilisation in certain verticals and broader adoption of established generative AI use cases could drive a 100–200 basis point acceleration in revenue growth across larger companies, even if discretionary spending remains muted.
JM Financial, however, remained cautious on valuations and competitive intensity, noting that while Indian IT stocks have underperformed the broader market, pricing still reflects expectations of a recovery that is yet to materialise fully.
Dhanshree Jadhav, analyst of technology at Choice Institutional Equities, said most IT services companies are expected to deliver resilient growth and margins in Q3 FY26 despite seasonal furloughs, supported by vendor consolidation, large deal ramp-ups, and AI-led enterprise modernisation.
She noted that while discretionary spending recovery may take longer, a weaker rupee is likely to support reported revenues and margins in rupee terms, even as cross-currency movements could modestly weigh on dollar growth. Jadhav added that valuations across the sector have turned more favourable, with large-cap stocks trading near long-term averages and mid-tier names well below prior peaks.
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