Indian IT Firms Face Muted Q3 Growth, Margins Hold Firm

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AuthorIshaan Verma|Published at:
Indian IT Firms Face Muted Q3 Growth, Margins Hold Firm
Overview

Indian IT services companies are poised for modest revenue growth in Q3FY26, according to a Centrum report. While select verticals like BFSI show traction, overall expansion will be subdued, with Tier 2 players expected to outperform. Margins are forecast to remain resilient, supported by rupee depreciation and ongoing efficiency initiatives despite lower utilization.

Indian IT services companies are expected to post muted revenue growth for the third quarter of the current financial year 2026, even as operating performance shows resilience, a report by Centrum indicates. The findings emerge ahead of the Q3FY26 earnings season scheduled to commence next week.

Revenue Outlook Remains Subdued

Revenue growth during the quarter is anticipated to be modest, supported by healthy traction in select verticals such as Banking, Financial Services and Insurance (BFSI) and Technology. The ramp-up of recently signed deals is also expected to contribute positively. However, overall growth is likely to remain subdued, with Tier 2 IT companies projected to outperform their Tier 1 counterparts.

Centrum stated that revenue growth for Tier 1 IT companies in Q3FY26 is expected to range between +0.2 per cent and +1.7 per cent quarter-on-quarter in US dollar terms. The Indian rupee depreciated by approximately 2.1 per cent against the US dollar on a quarter-on-quarter basis during Q3FY26, which is anticipated to bolster INR-based reported revenue growth. Simultaneously, cross-currency headwinds during the quarter stood at 20-40 basis points for companies under coverage.

Margin Resilience Amid Challenges

On the margin front, operating margins are expected to remain broadly stable. The 2.1 per cent depreciation of the rupee against the dollar is likely to provide support, even as companies navigate lower utilization rates due to furloughs and the seasonally weak quarter. Q3 is typically impacted by furloughs and a reduced number of working days, affecting utilization levels across the sector.

IT companies continue to prioritize efficiency measures. These include optimizing the employee pyramid, controlling subcontracting costs, increasing utilization rates, and implementing other cost-control initiatives. These steps are crucial for supporting margin stability, even as investments continue in building capabilities in new-age technologies.

Demand Environment and AI Integration

The demand environment has remained largely unchanged over the past three months. The primary focus during the quarter remains on accelerating the ramp-up of recently signed deals, which are predominantly driven by client needs for cost optimization and vendor consolidation. Furthermore, the adoption of AI tools is expected to improve revenue per employee, thereby supporting overall productivity for IT services companies in Q3FY26.

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