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Kolkata: Two prominent research agencies in two consecutive months have predicted a sluggish financial year for the Indian IT industry. In July, CareEdge Advisory said revenue growth is likely to be flat and could crawl at 3–5% in FY26, thanks to US tariff-related uncertainty, macroeconomic headwinds and delay in tech spending by clients. This month Citi Research has said that this financial year will be the third consecutive year of slowdown in the Indian IT industry with growth and margins remaining under pressure.
The CareEdge report said that dull tech spending in the principal markets of the US and Europe will mark the year and discretionary IT expenditure will remain very tight. It even said that revenue could move like a snail between 0-2% in constant currency terms. Citi Research said AI-driven productivity, growth in GCC (Global Capability Centres) and prioritizing expenditure towards AI could all contribute to the slowdown.
"Margins are starting to see pressure given: third year of slow growth; heightened competitive intensity and asks for AI driven productivity; need for investments. Visa risks need to be monitored," said the Citi report. The Citi report mentioned Infosys and HCL Technologies as the top picks among the major IT stocks and Hexaware Technologies and Mphasis among the mid-sized stocks.
The CareEdge Advisory report was largely based on the performance of the biggest Indian IT companies such as TCS, Infosys, Wipro, HCLTech and Tech Mahindra. “IT companies are increasingly investing in themselves to stay competitive, especially in areas like generative AI, ESG initiatives and machine learning,” it mentioned.
CareEdge also mentioned that the long-term potential of the Indian IT industry stays alive, thanks to the inherent cost advantages and digital capabilities. The trouble is essentially in the short and medium term as the global situation remains uncertain that impacts the tech budgets of corporates in the major markets of the US and Europe. This report observed that large digital transformation projects that bring both topline and bottomline growth for an IT company are being deferred. Indian IT companies are building internal capability around AI, cloud services and cybersecurity.
CareEdge mentioned how large deal categories have declined. The number of new clients was flat or even negative for deals that are valued above $50 million and $100 million. “Top players are banking on existing customers to drive future growth, instead of chasing high-value new accounts,” it said. Though revenue growth was tepid, EBITDA (operating) margins improved a bit in the last financial year (FY25) and stood around 25%. But pressures on margins came from rising employee costs and technology investments.
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