Indian IT firms are set for another muted quarter in Q2, with weak discretionary spending, AI-led pricing and productivity pressures, and longer decision-making cycles limiting revenue growth. Persistent macroeconomic uncertainty, geopolitical volatility and higher interest rates are also weighing on demand.
The second quarter normally provides a boost before the holiday season, but expectations remain for low-single-digit sequential revenue growth.
Motilal Oswal Financial Services (MOFSL) expects demand to remain soft in the quarter ended September, as macro pressures, higher interest rates, AI-related disruption and geopolitical uncertainty affect spending and decision-making.
The brokerage expects large-cap companies to post 0.5-3% constant-currency sequential growth, while mid-cap firms are expected to grow between 0% and 12%.
AI is also changing the economics of existing IT contracts. Brokerages said that they expect pricing pressure and AI deflation to weigh on growth, even as margins remain steady. Kotak Institutional Equities expects gross deflation of about 7% and net deflation of 3.5%, with clients seeking a larger share of productivity gains from AI.
“Deal wins increasingly protect relevance rather than guarantee growth,” Kotak said.
Among large companies, HCLTech is expected to lead growth with 3% sequential constant-currency growth, followed by Infosys at 1.8% and Tech Mahindra at 1.7%, according to MOFSL. TCS is expected to post 0.5% growth. Wipro is forecast to decline 0.5%, while LTIMindtree is expected to grow 0.9%.
Kotak Institutional Equities has a more conservative estimate, expecting HCLTech to lead large companies with 2% sequential organic growth, followed by Infosys at 1.1% and TCS at 0.5%. It expects Tech Mahindra to grow 1.6%, while Wipro is forecast to decline 1% and LTIMindtree to grow 1%.
Mid-cap companies are expected to grow faster. MOFSL expects Coforge to lead with about 12% sequential constant-currency growth, helped by the Encora acquisition, followed by Persistent Systems at 5%, Mphasis and Hexaware at about 3%, and Zensar at 2.4%.
Kotak expects Persistent Systems to grow 7% sequentially, helped by the ramp-up of a large deal, while Coforge is expected to grow 4.5% and Mphasis 3.5%.
JM Financial expects mid-tier IT revenue to grow 2.7-13% sequentially in constant currency, compared with a decline of 0.5% to growth of 2.6% for large companies.
The brokerage expects margins to remain within a narrow range for most companies. TCS and HCLTech are expected to see margin expansion of about 100 basis points and 120 basis points, respectively, helped by the reversal of wage-hike costs. Infosys and Tech Mahindra are expected to remain broadly stable.
MOFSL expects BFSI to remain the main growth driver, while consumer, telecom and travel and transportation are likely to remain under pressure. The brokerage also expects cross-currency headwinds of about 10-30 basis points for most companies.
The brokerage said weaker Q2 revenue could lead to guidance cuts, while HCLTech is expected to maintain FY27 guidance on better visibility.
