Tata Consultancy Services (TCS) will kick-start the Q2 FY26 earnings season for the sector, with its results set to be declared on 9 October. According to Jefferies India’s report dated 30 September, revenue growth for the sector is expected at 1.2% sequential constant currency (cc) (+0.5% year-on-year cc). However, the quarter-on-quarter growth in Q2 FY26 is likely to be the second lowest for a Q2 in the past five years.
Despite this, there could be some bright spots. Infosys is expected to benefit from higher financial services demand and inorganic contributions, while LTIMindtree could see gains from the ramp-up of large deals. Additionally, all major currencies have appreciated against the US dollar in the second quarter. As a result, Jefferies expects aggregate dollar revenue to grow by 1.6% sequentially, which is 40 basis points higher than the constant currency growth.
IT firms with higher exposure to Europe — such as Infosys, HCL Technologies, Tech Mahindra, and Coforge — will likely experience stronger forex tailwinds in Q2 FY26. The sector’s EBIT margin is anticipated to show a stable-to-improving trend sequentially, supported by a weak Indian rupee, lower visa costs, and ongoing cost optimization measures. (EBIT stands for earnings before interest and tax.)
Hiring is expected to remain muted. While some margin gains are anticipated, meaningful improvements may be limited due to pricing pressure, shifts in delivery models, and the transition toward generative AI (GenAI). Wage revisions for FY26, if any, will be a key area of focus.
Deal flows are likely to stay decent despite a volatile demand environment, primarily led by cost-optimization projects. TCS, Infosys, and HCL have all announced large deals during the quarter; however, these deals include a significant portion of renewals, according to a Kotak Institutional Equities report dated 1 October.
Furthermore, net new deals for companies have largely resulted from shifts in wallet share between service providers rather than from incremental technology budgets. This dynamic tends to fuel intense competition, potentially resulting in significant pricing pressure.
Tier-II IT companies are expected to continue outperforming their Tier-I counterparts in terms of revenue growth.
Vertical-wise, the BFSI (Banking, Financial Services, and Insurance) sector is projected to maintain its recovery in Q2, although weaknesses in manufacturing and retail are likely to persist.
Management commentary regarding demand trends, confidence about a growth uptick in H2, and expectations around furloughs (given that Q3 is seasonally weak) will be important to gauge the overall outlook. Additionally, whether Infosys and HCL revise their FY26 revenue growth and margin targets remains a key monitorable.
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