Indian IT Sector Faces Continued Challenges Amid Global Uncertainty

As the Indian IT sector braces for another underwhelming quarter, analysts are voicing concerns over the impact of weak global demand, rising U.S. tariffs, and ongoing trade tensions. Six brokerages have projected modest growth figures ahead of the earnings season, indicating that the industry is grappling with a challenging economic landscape.

Forecasts Indicate Modest Growth

According to recent analyses, four brokerages anticipate a year-on-year revenue growth of approximately 6% and a profit increase of around 5.5% for the September quarter. This comes despite the seasonal strength typically associated with project cycles. Abhishek Pathak from Motilal Oswal Financial Services remarked, “September will be another muted quarter for IT,” highlighting the hesitance among clients to commit to large-scale initiatives due to macroeconomic uncertainties and tariff issues.

The projections suggest that the Indian IT sector will continue to experience single-digit growth, extending a trend that has persisted for eight consecutive quarters. This stagnation is largely attributed to reduced spending from U.S. clients, a critical market for Indian IT firms.

Historical Context: A Shift from Double-Digit Growth

The last time Indian IT firms experienced double-digit revenue growth was in the March quarter of 2023. This surge was largely fueled by the digital transformation wave, cloud adoption, and the shift to remote work that followed the COVID-19 pandemic. However, the current economic climate has shifted dramatically, with many firms now facing headwinds that threaten their growth trajectories.

Tata Consultancy Services (TCS), the largest IT firm in India, is set to kick off the earnings season on October 9. Analysts expect TCS to report a revenue increase of about 2% year-on-year, a significant decline from the 8% growth recorded during the same period last year. Similarly, Infosys and HCLTech are projected to achieve revenue growth of approximately 8% and 9.5%, respectively.

Broader Economic Implications

Citi Research has indicated that fiscal 2026 may mark the third consecutive year of sluggish performance for the IT sector. Ambit Capital has also raised alarms, suggesting that weak macroeconomic conditions and policy uncertainties could hinder any potential rebound in 2027. This sentiment is echoed by U.S.-based Accenture, which recently noted a lack of “meaningful change” in market conditions and forecasted full-year 2026 revenue below the LSEG-compiled estimate of 5.3%.

While the banking and financial services segments are expected to remain resilient, other sectors such as manufacturing and retail are facing significant pressures from tariffs and budget constraints. Systematix Institutional Equities has pointed out that these challenges could further complicate the recovery process for the IT sector.

Regulatory Challenges and Industry Concerns

Adding to the industry’s woes are proposed regulatory changes, including a planned $100,000 fee for H-1B visas and a potential 25% U.S. tax on outsourcing. While analysts believe the immediate impact of these changes may be limited, they could lead to significant shifts in delivery models in the long run. The uncertainty surrounding these policies has heightened concerns among industry stakeholders.

Foreign investors have also been pulling back, with a staggering outflow of 678.36 billion rupees (approximately $7.64 billion) from IT stocks in 2025. This represents the largest sectoral outflow and has contributed to a 20% decline in the Nifty IT index year-to-date, contrasting sharply with a 6% gain in the broader Nifty 50 index.

Valuation Adjustments and Future Outlook

Despite the current challenges, some analysts remain optimistic about the long-term prospects of the Indian IT sector. Axis Securities has noted that the recent correction in large- and mid-cap IT stocks has improved valuations, presenting a more favorable risk-reward scenario for investors. However, they caution that a sharp rebound may take time.

The Indian IT sector has historically been a cornerstone of the country’s economy, contributing significantly to GDP and employment. As the industry navigates these turbulent waters, stakeholders are closely monitoring global economic indicators and policy developments that could shape the future landscape.

Conclusion

The Indian IT sector is at a crossroads, facing a confluence of challenges that threaten its growth momentum. With weak global demand, regulatory uncertainties, and shifting client spending patterns, the upcoming earnings season is poised to reveal the extent of these impacts. While some analysts see potential for recovery in the long term, the immediate outlook remains cautious. As the industry adapts to these evolving conditions, its resilience will be tested in the months ahead.