Major players project solid growth, backed by innovation and strategic expansion

India’s Information Technology (IT) sector concluded the fourth quarter of FY25 with subdued performance, primarily due to weak global demand, conservative client spending, and the impact of fewer working days. However, a more optimistic tone has emerged for FY26, driven by strong deal pipelines, investments in emerging technologies like artificial intelligence (AI), and a steady push for digital transformation across industries. Despite the challenges faced in the previous quarter, the sector appears to be on the verge of a positive turnaround, backed by structural strengths and long-term demand potential. 

Q4 FY25: Overview of a Soft Quarter 

The final quarter of FY25 saw several of the top Indian IT companies report negative or flat growth in constant currency terms. Revenue declined in the range of 0.6% to 3.5% across major players, largely due to client-specific delays, budget tightening in key markets like the US and Europe, and project deferrals. Mid-sized IT firms displayed mixed performance—some benefited from recent large deals moving into execution stages, while others faced challenges similar to the larger firms. 

However, margins remained largely stable across the sector, suggesting that companies managed their costs well despite weaker revenues. Cost optimization measures, such as reducing discretionary spending and improving employee utilization, helped maintain operating profitability. 

Factors Supporting Optimism for FY26 

Despite the cautious end to FY25, several tailwinds are contributing to a more upbeat outlook for FY26. 

1. Robust Order Book and Deal Wins 

Major IT companies have reported consistent deal wins over the past two years, resulting in strong deal pipelines and a healthy book-to-bill ratio. Estimates indicate that cumulative deal wins are nearing $180 billion. These contracts are expected to begin execution in FY26, providing a solid base for revenue recovery. The visibility offered by long-term, high-value deals gives companies confidence about growth prospects, even in the face of short-term uncertainty. 

2. Digital Transformation and Cloud Services 

Global enterprises continue to prioritize digital transformation, investing in areas like cloud computing, data analytics, and automation. Demand for services related to migrating legacy systems to cloud infrastructure remains steady. Indian IT firms, with their capabilities across public, private, and hybrid cloud ecosystems, are well-positioned to capture a significant share of this ongoing transformation. 

Digital transformation is no longer just an IT initiative but a business imperative for global clients across sectors such as banking, retail, manufacturing, and healthcare. These verticals are expected to drive a large portion of IT spending in FY26. 

3. Generative AI and Automation 

The rise of generative AI tools and platforms has opened a new frontier for IT services. Companies are actively investing in AI research and development to build enterprise solutions that improve productivity, decision-making, and customer experience. 

HCLTech, for instance, is leveraging its AI capabilities to deliver cost-efficient solutions to global clients. This includes AI-powered analytics, content generation tools, and intelligent automation systems. These innovations are expected to play a central role in client engagement strategies during FY26. 

4. Global Expansion and Strategic Acquisitions 

Indian IT firms continue to expand their global presence through acquisitions, joint ventures, and partnerships. These moves enable access to high-value markets, increase domain expertise, and enhance delivery capabilities. For instance, firms have increased their footprint in Europe, Latin America, and Asia-Pacific to diversify their client base and reduce reliance on the North American market. 

This geographic expansion, coupled with localized hiring and delivery models, helps in addressing regional client needs more effectively and ensures business continuity even during geopolitical disruptions. 

Company-Specific Outlooks 

HCL Technologies 

HCLTech has guided for revenue growth in the range of 2% to 5% for FY26. The company has highlighted strong demand in areas such as digital engineering, AI, and cloud services. Investments in cost-effective, scalable solutions are expected to support client budgets in an uncertain economic environment. This proactive approach is fueling optimism for sustained growth through the fiscal year. 

Infosys 

Infosys has issued a cautious revenue growth forecast of 0% to 3% for FY26. While this suggests some uncertainty in near-term demand, long-term fundamentals remain strong. Infosys continues to win large deals and is focused on expanding its AI and digital capabilities. The company is also expected to benefit from increased deal conversion rates in the second half of the fiscal year. 

Wipro 

Wipro’s outlook for the first quarter of FY26 includes a revenue decline of 1.5% to 3.5%, mainly due to delays in the ramp-up of existing deals. However, the management expects deal execution to gain pace in subsequent quarters. Strategic investments in cloud platforms, cybersecurity, and AI are seen as long-term growth drivers. 

Sector Challenges That Remain 

Despite the positive indicators for FY26, the sector continues to face some headwinds that could affect growth: 

Global Economic Conditions: Economic uncertainty in developed markets, especially the US and Europe, could delay client spending decisions. Although inflation and interest rates have stabilized, cautious sentiment persists in certain industries like banking and financial services. 

Geopolitical Instability: Conflicts, trade restrictions, and visa policy changes can disrupt project timelines, particularly for offshore-heavy delivery models. Companies need to remain agile and adapt to these risks with diversified delivery centers and remote work policies. 

Technology Evolution and Talent Pressure: Rapid advancements in technologies like AI, blockchain, and edge computing require continuous learning and upskilling. The IT sector faces ongoing challenges in acquiring and retaining talent skilled in emerging technologies, especially in a competitive global labor market. 

Market and Investor Sentiment 

Stock market analysts and investors are cautiously optimistic about the IT sector. While earnings growth in the first half of FY26 may remain modest, the second half is expected to see a pickup as deal executions scale up and budgets for discretionary projects open up. 

Valuation multiples have moderated after the Q4 results, offering potentially attractive entry points for long-term investors. Companies that demonstrate consistent deal conversion, margin stability, and technology leadership are likely to outperform in FY26.