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Informist, Thursday, Aug. 6, 2026

 

NEW DELHI – The June quarter drew a mixed top-line show from information technology services companies due to the West Asia war and macroeconomic uncertainties hurting demand and leading to delays in deal closures and ramp-ups. While some impact of the ongoing geopolitical challenges is expected in the ongoing quarter, Kotak Institutional Equities believes uncertainties have reduced, which will help drive away delays. The brokerage firm anticipates up to 2% sequential growth for Tier-1 companies in the sector for the ongoing September quarter, it said in a report Wednesday. "Among mid-tier, Persistent will lead revenue growth from ramp-up of hi-tech mega deal. We expect moderate-to-healthy growth in other mid-tier (firms)," Kotak added.

 

Mid-tier IT services companies once again outperformed their Tier-1 peers in the June quarter. Among the large-cap players, Tech Mahindra Ltd. led sequential revenue growth in the quarter and revenue declined on an organic basis for Infosys Ltd., HCL Technologies Ltd., and Wipro Ltd., as per the report. Sales growth was subdued for Tata Consultancy Services Ltd. at 0.4%. Overall, companies with healthy large deal ramp-ups grew well and those facing client-specific demand challenges and pricing pressures were impacted, the report said.

 

The larger demand environment impacted revenue growth guidance with Infosys lowering the upper end of its 2026-27 (Apr-Mar) guidance by 5 basis points. The company now expects its revenue in constant currency terms to grow 1.5-3.0% in FY27 compared with the 1.5-3.5% growth expected at the end of the March quarter. 

 

In terms of margins, the profile for large-cap firms remained stable in the June quarter, barring Wipro Ltd. "Margins have expanded significantly for select mid-tier (firms) in recent quarters — Coforge and Persistent," the report said.  

 

 

IT services companies won large deals across a range of themes in the June quarter, including vendor consolidation, digital transformation, and legacy modernisation. Kotak said deal wins were reasonable for TCS, Infosys, and HCL Tech. They were lukewarm for Wipro and healthy for Tech Mahindra. In terms of verticals, banking, financial services, and insurance stood out in the June quarter with healthy sequential growth while the show was lukewarm in manufacturing, healthcare and hi-tech categories, according to the report. "...telecom was the most impacted vertical with sequential revenue decline of 2.6% due to spending cuts in select accounts. Revenue declined sequentially also in the retail vertical due to pricing pressure and a weak discretionary spending environment," it said.

 

Challenges tied to productivity benefits from adoption of generative artificial intelligence are manifesting as lower volumes or spending in software development programmes and higher pricing pressure in managed services deals, the report said, adding that the Indian IT sector has begun to feel this impact. "The headwinds are largely borne by incumbents, i.e., Tier-1 IT. Mid-tier such as Persistent, Hexaware and Coforge have been able to offset it through share gains and new wins," Kotak said.

 

Stocks of IT services firms have run up in the past month, making risk-reward balanced from being attractive, as per the report. Kotak expects Tech Mahindra to deliver revenue growth higher than its Tier-1 peers on a consistent basis. In the mid-tier bracket, Coforge and Hexaware are the broking firm's top picks. 

 

Firms need to execute well on both defending share in existing business and winning new deals, both of which are challenging in the current environment, Kotak said, adding that healthy revenue growth amid modest industry growth requires strong execution on both these axes. In terms of profitability, companies face challenges from another year of moderate growth, pricing pressure in the base business, AI-related investments, and transition costs in deal ramp-ups, the report said. Low-hanging levers such as utilisation rate and subcontractor usage have been adequately used up and incremental margin pressure is being absorbed by further rupee depreciation and aggressive cost control, it added.  End

 

Reported by Shakshi Jain

Edited by Akul Nishant Akhoury

 

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