Mid-Tier IT Firms Shine As Tier-1 Giants Tread Water In Q1FY26: Report

Despite global economic headwinds and a challenging demand environment, the report notes that the impact on the Indian IT industry has been milder than initially feared

The report remains positive about the underlying fundamentals of the industry, particularly pointing to a strong deal pipeline

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India’s Information Technology (IT) industry is poised to exhibit a varied performance in the first quarter of the Financial Year 2026, with larger firms expected to post flat revenue growth, while smaller, mid-tier companies are likely to report stronger results, according to a recent report released by HDFC Securities, which provides a cautiously optimistic view of the sector’s immediate outlook.

Despite global economic headwinds and a challenging demand environment, the report notes that the impact on the Indian IT industry has been milder than initially feared. “Factors such as US tariff measures and broader macroeconomic challenges may limit discretionary spending, but the demand deterioration has been lower vs expectation at the start of the quarter,” the report stated.

Cross-Currency Gains To Boost USD Revenue Growth

One of the key positives for the quarter is the significant cross-currency tailwind, which is expected to boost reported revenue growth in USD terms. “There is a huge cross-currency tailwind in the quarter which will result in strong USD growth QoQ,” HDFC Securities noted, estimating a benefit in the range of 50 to 300 basis points.

However, in constant currency terms, tier-1 companies may only see a narrow revenue growth range of -2.8 per cent to +1.5 per cent quarter-on-quarter, and -3.4 per cent to +4.5 per cent year-on-year. In contrast, mid-tier firms are projected to perform better with quarter-on-quarter constant currency growth ranging between +3.7 per cent and -3.4 per cent, though some may still encounter headwinds.

Strong Deal Pipeline, AI As Key Growth Lever

The report remains positive about the underlying fundamentals of the industry, particularly pointing to a strong deal pipeline. Companies are seeing continued traction in areas like cost optimisation, infrastructure modernisation, and artificial intelligence (AI) implementation.

Generative AI, in particular, is emerging as a core growth catalyst. Many IT firms have moved beyond the experimentation stage and are now rolling out full-scale AI deployments. “Generative AI remains a significant growth driver, with many companies moving beyond proof-of-concept (PoC) to full-scale deployments -- a trend underscored by Accenture's recent strong Gen AI bookings,” the report observed.

Sector Outlook Remains Resilient

Despite ongoing macroeconomic pressures and reduced discretionary IT spending, the sector’s full-year guidance for FY26 remains intact. HDFC Securities expressed confidence in the sector’s long-term potential, stating that upcoming Q1 results will offer valuable insight into the industry's adaptability and strength.