Indian IT companies are bracing for a seasonally subdued third quarter, with analysts projecting modest growth as the sector navigates demand uncertainties and cross-currency headwinds. The holiday-shortened quarter is expected to see overall revenue growth moderate, though investors will closely watch for signals about future demand recovery.

Revenue Growth Projections

The IT sector is expected to deliver measured growth in Q3FY26, with sequential revenue expansion projected across major players. According to Jefferies India, overall revenue growth for their coverage universe is expected to moderate to 1.2% sequentially in constant currency terms, representing 0.8% year-on-year growth in constant currency.

This growth in Q3FY26 is projected to be the second lowest in a third quarter over the past five years. Aggregate US dollar revenues are expected to grow 0.9% quarter-on-quarter, 30 basis points lower than constant currency growth, as all major currencies have depreciated against the US dollar during the quarter.

Company-Specific Performance Outlook

HCL Technologies is expected to lead growth among large-cap peers, aided by seasonally strong products & platforms business and recovery in retail, consumer packaged goods, and healthcare verticals. The company is anticipated to retain its FY26 revenue growth guidance of 4-5% for services.

Larger peers Infosys and Tata Consultancy Services are projected to see marginal sequential growth. Infosys is expected to maintain its FY26 revenue growth guidance of 2-3%. Wipro's sequential revenue growth will benefit from the contribution of Harman DTS, providing a one-month contribution in Q3.

Tier-2 Companies Expected to Outperform

Tier-2 IT companies are anticipated to continue outperforming larger competitors due to better agility and stronger exposure to cost-optimization deals. Revenue growth is expected to be led by Persistent Systems and Coforge.

According to ICICI Securities, healthy total contract value run-rates are expected to continue, led by a focus on winning large deals. GenAI and Agentic AI solutions are expanding the total addressable market for mid-cap IT services, helping them compete with large-cap players on pricing.

Sectoral and Regional Dynamics

Among industry verticals, banking, financial services and insurance remains the most resilient sector. Hi-tech is also maintaining positive momentum, while manufacturing remains weak overall, primarily due to continued softness in the automobile segment, although non-auto sub-segments are showing stability.

IT firms with higher exposure to Europe, including Coforge, Tech Mahindra and TCS, will face higher cross-currency headwinds. The performance of the retail vertical is expected to be company-specific, with HCL and Tech Mahindra witnessing early signs of recovery.

Margin Outlook and Market Performance

Q3 operating margins could face pressure from wage hikes and furloughs, which would be partly offset by operating leverage and rupee depreciation. Several companies including TCS, Wipro, Coforge, Hexaware and Persistent could see sequential margin declines.

The Nifty IT index has gained around 8% over the past three months, driven by rupee depreciation, traction in AI-led deal activity, and expectations of discretionary spend recovery in FY27. According to Bloomberg data, the Nifty IT index is trading at a one-year forward price-to-earnings ratio of 27x.

Motilal Oswal Financial Services noted that markets are likely to look beyond seasonal factors and focus on signals around the demand environment from client budgeting for 2026. The March-April 2026 budget reset period may serve as an initial indicator, with some AI programs potentially transitioning from preparation to early deployment phases.

India's top IT services companies are expected to deliver mixed December-quarter performance, with seasonal headwinds still evident but deal execution, margin levers and guidance commentary driving differentiation between major players. Bloomberg estimates point to modest sequential revenue growth across the large-cap IT sector in Q3, alongside improvement in operating profit for some companies.

Company-Specific Expectations

Tata Consultancy Services

Bloomberg estimates for TCS suggest headline growth is masking continued pressure in constant-currency terms, reflecting the lingering impact of the BSNL ramp-down. The company's performance indicators show specific trends:

HCLTech

Estimates point to stronger sequential growth relative to peers at HCLTech, underpinned by seasonal strength in the products and platforms business. The company is expected to show margin expansion despite wage hikes, with the Street factoring in a dividend announcement.

Infosys

Bloomberg estimates suggest a steady quarter for Infosys, with limited movement in profit but an improvement in constant-currency revenue growth. Headcount is expected to remain stable, reinforcing the view that the company is prioritising execution and margin discipline over expansion.

Wipro

Estimates indicate a sequential pickup in revenue and operating profit at Wipro, aided by inorganic contribution, though margin movement is expected to remain constrained. Headcount is forecast to stay largely unchanged, while expectations of a dividend keep capital return on the agenda.

Analyst Perspectives

Growth Projections

According to Investec, Tier-1 IT firms are likely to post sequential growth of 0.8%–2.4%, with HCLTech and Wipro among those expected to perform relatively better. The brokerage expects the lower end of guidance to be raised at Infosys and HCLTech, supported by stronger deal pipelines and momentum in artificial intelligence-led engagements.

Market Conditions

Jefferies expects aggregate growth across its coverage to moderate, with margins supported by currency movements but partly offset by furloughs. Focus areas remain calendar year 2026 budgets and demand visibility, as discretionary spending recovery remains uneven.

Sector Outlook

Analysts broadly agree that the December quarter remains seasonally weak due to fewer billing days, but note that delays and deferrals have eased compared with previous years. UBS maintains a cautious stance on the sector, noting that discretionary demand has yet to show a clear recovery, though early signs of stabilisation are emerging.

Nuvama expects a stable quarter despite seasonality, with most companies delivering muted but positive sequential growth driven by deal ramp-ups. The firm sees limited change in macro conditions, suggesting management commentary is likely to remain similar to the previous quarter, while maintaining a positive medium- to long-term view on the sector.