A new report from financial services firm Centrum Broking forecasts a period of modest expansion for India's IT services sector in the third quarter of the financial year 2026. While the industry's operating performance is expected to hold steady, overall revenue growth is likely to remain subdued as the earnings season kicks off next week.
Tier 2 Players Take the Lead in Growth
The analysis presents a nuanced picture, indicating that revenue growth for large Tier 1 IT companies will be muted, projected in a narrow band of 0.2% to 1.7% quarter-on-quarter when measured in US dollars. In a notable trend, the report suggests that smaller Tier 2 IT firms are poised to outperform their larger counterparts during this period. This resilience is partly attributed to healthy momentum in key industry segments like Banking, Financial Services and Insurance (BFSI) and the Technology vertical itself.
Currency Movements and Margin Resilience
Financial results reported in Indian rupees will receive a boost from foreign exchange rates. The Indian rupee depreciated by approximately 2.1% against the US dollar on a sequential basis during Q3FY26. This depreciation is anticipated to support revenue figures in local currency terms, even as companies faced cross-currency headwinds of 20-40 basis points.
On the profitability front, operating margins are expected to remain broadly stable. The weaker rupee provides a cushion against typical Q3 challenges, including lower utilisation rates due to client furloughs and fewer working days. Companies continue to aggressively pursue efficiency gains through measures like restructuring their employee pyramid, optimising subcontractor expenses, and pushing utilisation higher.
Deal Ramp-Ups and AI Focus Define Quarter
The broader demand environment for IT services has seen little change over the past quarter, the report notes. A primary focus for companies has been scaling up recently secured deals, many of which are driven by clients seeking cost optimisation and consolidating their vendor lists.
An important highlight is the growing role of artificial intelligence. The adoption of AI tools is projected to enhance revenue generated per employee, thereby boosting overall productivity for IT services providers in Q3FY26. This strategic investment in new-age capabilities continues alongside stringent cost-control initiatives aimed at preserving margin stability in a seasonally soft quarter.
