The Indian IT services sector is likely to face challenges in FY26 due to increasing regulatory and economic uncertainties linked to the policies of the US administration under the presidency of Donald Trump. Analysts believe that pauses in IT budgets by corporate clients, combined with these uncertainties, could delay the industry’s recovery.
The proposed tariffs by Trump, aimed at boosting American manufacturing, could negatively affect major clients of Indian IT firms in the US, leading to reduced tech spending.
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Trump’s tariff strategy may increase costs for US businesses, making sourcing equipment more expensive and leading to reductions in large transformation projects, a key revenue source for Indian IT firms.
Kotak Institutional Equities and Motilal Oswal Financial Services predict that India’s top IT firms — Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro, and Tech Mahindra — will report a maximum of 5% constant currency revenue growth in FY26. Meanwhile, JM Financial slashed the maximum growth to 5.8%, down from its earlier projection of 7.8%.
A report by Prabhudas Lilladher stated: “Until Q3FY25, gradual recovery in demand was visible within certain pockets; however, all this could change quickly with inflationary trade policies further escalating uncertainties among global enterprises, and requiring them to revisit budgetary spends”.
A Kotak Institutional report dated March 13 said: “The fallout of tariff threats by the US is slowdown and uncertainty in spending. Noting the uncertainty, FY2026 (estimate) could end up similar to FY2025E or even lower in growth”.
The downward revisions come just ahead of the Q4 FY25 earnings announcements, with TCS scheduled to release its results on April 10, followed by Infosys and HCLTech on April 17 and 22, respectively.
Meanwhile, revenues for the fourth quarter ending March are projected to have dropped by as much as 1.3% sequentially, with the best-case scenario indicating a mere 0.3% growth. Seasonal weaknesses, deal ramp-downs, and continued constraints on discretionary spending are expected to impact margins.
A Jefferies equity research report on Q4 earnings for the IT services sector stated, “We expect aggregate revenues for our coverage to decline by -0.4% QoQ cc (quarter on quarter in constant currency terms) and +4.3% year-on-year cc”.
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