IT Sector Q1 FY26 Preview: Uncertain macro environment casts shadow on sectoral growth

The Q1FY26 results season is starting this week, with some small and medium-sized companies reporting their Q1 results on Monday. Sectorally, the IT sector will kickstart its earnings season from 10th July with Tata Consultancy Services and Tata Elxi reporting their Q1FY26 results, followed by Tech Mahindra, L&T Technology Services in the next week. Other key companies are yet to report the board meeting dates for considering quarterly results.

Here’s a preview of Q4FY25 and what's in store for Q1FY26

The overall earnings growth for the IT sector remained moderate due to challenges related to the slowdown in key markets like the US and Europe. The tier 1 and large-cap companies like TCS, Infosys and Wipro reported lower single-digit growth in the topline. Meanwhile, the tier 2 or mid-cap companies reported superior performance compared to their tier 1 peers. In terms of operational efficiency, tier 2 companies showed strong operating growth with better operating margins. On the bottom line front, the overall net profit growth stood in mid-single digits, owing to better operational efficiency in some cases.

Here’s what to expect from Q1FY26 earnings

The topline for key companies is expected to remain benign with no fresh major deal wins during the quarter. The rising ambiguity around tariffs and their impact on global trade has led to uncertainty in deal wins. However, Accenture results provide hope with better-than-expected earnings during the quarter. For companies like TCS absence of its major customer, BSNL, may show a negative impact on the topline. While segmental growth in Banking and Finance, Energy, and Healthcare aids overall topline growth for companies.

Tier 2 IT companies to face pressure due to segmental headwinds

Q4FY25 went as a strong quarter for tier 2 IT companies with outperformance over the tier 1 peers. However, the Q1FY26 is expected to be a sequentially weak quarter for tier 2 companies as experts believe that the key segments like automobile, retail and other consumer-facing segments will see demand slowdown. While non-consumer-related segments may remain insulated from the seasonality effect. However, positive changes in constant currency terms may help in offsetting the negative impact on the sector.