IT Services Face Uncertain Demand in Q3FY26 as Firms Rely on Cost-Takeout, Efficiency-Led Growth
NEW DELHI: India’s information technology (IT) services sector continued to navigate an uncertain demand environment in the third quarter of FY26, as discretionary technology spending remained under pressure across key global markets. Muted client budgets, delayed decision-making, and cautious enterprise spending are expected to push IT companies to rely more heavily on cost-takeout and efficiency-led programmes to support growth through the second half of the financial year.
According to Bloomberg estimates, the top six Indian IT services companies are likely to post sequential revenue growth in the range of 1% to 4% during the October–December quarter. While this reflects modest expansion, year-on-year growth is expected to show an improvement, helped by a low base and stabilisation in certain client segments.
The October–December period is typically a seasonally weak quarter for the IT services industry due to holidays and furloughs in key markets such as the United States and Europe. However, analysts say this earnings season will be closely tracked for management commentary on demand recovery signals, particularly around artificial intelligence (AI)-led deal pipelines.
AI in Focus as Clients Remain Cautious
A key area of investor and analyst attention will be whether AI-related discussions are translating into tangible revenue visibility. Over the past year, IT firms have highlighted strong client interest in generative AI, automation, and productivity-enhancing solutions. However, deal closures have been slower, as enterprises focus on pilot projects and proof-of-concept engagements rather than large-scale transformation programmes.
Industry experts say companies are likely to emphasise AI as a long-term growth driver, even as near-term revenues remain limited. Management commentary on conversion rates from AI pilots to full deployments will be critical in shaping market sentiment.
While discretionary spending on large digital transformation projects remains subdued, demand for cost optimisation, vendor consolidation, cloud efficiency, and automation-driven productivity improvements continues to support deal flow. This has pushed IT firms to position themselves as partners in efficiency rather than growth-led transformation.
Cost Discipline Takes Centre Stage
With revenue growth under pressure, IT companies are expected to maintain strict cost discipline. Measures such as tighter hiring, reduced subcontracting, optimisation of onsite-offshore mix, and rationalisation of operational expenses are likely to remain in focus.
Analysts expect margin protection to remain a priority, especially as wage hikes, higher facility costs, and currency volatility continue to weigh on profitability. Companies may also highlight improvements in utilisation rates and operational efficiencies as levers to sustain margins in a challenging demand environment.
Regional Trends and Sector Outlook
Demand trends continue to vary across geographies. While the US remains cautious due to macroeconomic uncertainty and higher interest rates, Europe has shown relative resilience in select verticals. Banking, financial services, and insurance (BFSI) spending remains mixed, while manufacturing, healthcare, and energy clients are selectively investing in efficiency-led digital initiatives.
Looking ahead, industry watchers believe that a meaningful recovery in discretionary IT spending may only emerge once global economic conditions stabilise and enterprises gain greater clarity on return on investment from AI-led initiatives.
For now, the sector’s growth narrative is expected to be driven by operational efficiency, incremental deal wins, and cautious optimism around AI adoption rather than a broad-based demand rebound.
Our Final Thoughts
The Q3FY26 earnings season underscores a familiar reality for India’s IT services sector: resilience amid restraint. While growth remains modest, companies are adapting by shifting focus from expansion-led transformation to efficiency-driven solutions. AI continues to dominate strategic conversations, but its revenue impact is still evolving. Until global enterprises regain confidence to loosen technology budgets, IT firms will need to balance cautious optimism with disciplined execution. The coming quarters will reveal whether AI can move from promise to performance in a meaningful way.
