The September quarter (Q2FY26) showed a mild recovery for India’s top IT companies as most companies reported improved revenue and healthier operating margins (Ebit). The improvement comes at a time when global tech spending is showing early signs of stabilising, offering some relief after several muted quarters.
Infosys reported 2.70 per cent quarter-on-quarter (QoQ) revenue growth, and in constant-currency (CC) terms, the revenue growth came in at 2.20 per cent. Its Ebit margin improved by 20 basis points (bps) to 21 per cent.
Tata Consultancy Services (TCS) delivered a stronger performance with 3.72 per cent QoQ revenue growth. Its Ebit margin rose 70 bps to 25.20 per cent, the highest among large-cap IT firms.
HCL Technologies logged 11.6 per cent QoQ rise in revenue. Its Ebit margin expanded by 110 bps to 17.40 per cent.
According to a Goldman Sachs report on the sector’s Q2FY26 performance said operating margins improved across most IT firms in Q2FY26, led by currency gains and internal efficiency programs. Hiring trends also showed early signs of recovery. “Headcount trends in Q2 were better than Q1 for most,” the report said.
The report further added that all major IT firms reported sequential revenue growth and the sector expanded by 1.50 per cent QoQ.
Commenting on the sector’s performance, Vaqarjaved Khan, CFA, senior fundamental analyst at Angel One, said Q2FY26 turned out better than what the market had initially expected. “For Q2FY26 the Street had lowered revenue expectations for IT companies including us, but the companies fared slightly better on revenue growth as compared to expectations with mid-single digit growth in CC revenue and with better-than-expected Ebit margins,” he said.
Khan added that large players such as Infosys and HCL Tech have also raised their FY26 guidance.
FPIs Dump IT Stocks In November
Amid this recovery, foreign portfolio investors (FPIs) dumped IT stocks in the first half of November. Till November 15, FPIs offloaded Rs 4,873 crore from the sector, the highest FPI outflow in any sector for the given time period.
Meanwhile, the Nifty IT index surged more than 3 per cent during the same time frame, suggesting domestic buyers buying into the dip.
"FPIs have been trimming exposure to Indian IT as concerns rise over tighter US visa policies, a slower pickup in global tech spending, and better short-term opportunities in cyclical sectors. Meanwhile, sector’s limited meaningful exposure to the global artificial intelligence (AI) boom and growing fears that generative AI will disrupt traditional outsourcing models has driven FPI ownership in the sector to multi-year lows," explained Pranay Aggarwal, Director and CEO of Stoxkart.
IT Sector Outlook: What Investors Should Do
Goldman Sachs said there are early signs of demand stabilisation in the IT sector, but visibility for calendar year 2026 “remains poor.” The brokerage noted that company commentary indicates AI-related productivity gains are becoming more common, which could keep valuation multiples under pressure.
Goldman Sachs expects the December 2025 quarter (Q3FY26) to maintain the positive momentum, with services revenue likely to grow by about 1.7 per cent sequentially. For the full financial year 2026, the sector’s revenue growth is expected to stay muted at around 1.1 per cent year-on-year (YoY), before improving to about 5.4 per cent in financial year 2027. The brokerage attributed the sluggish outlook to cautious client spending amid macroeconomic uncertainty and the impact of AI productivity gains, which are starting to weigh on traditional revenue streams.
"However, our full year FY26 growth estimate of +1.1% YoY (+10 bps vs earlier) and FY27 estimate of +5.4% YoY (-10 bps vs earlier) are largely unchanged." said the report.
CFA Khan said the sector is in a transitionary phase with moderate growth, disciplined cost control and growing monetisation of AI-led offerings. “Large deal ramp up are expected for bigger companies and mid-tier companies as well,” he added.
According to him, any meaningful rerating of the sector only happen when clear signs of growth get visible along with improved execution.
