Q2FY26 IT preview: Muted topline, tepid margin growth due to headwinds; all eyes on commentary

Indian benchmark indices are trading in a consolidating mode as they approach the crucial Q2FY26 result season. The Q2FY26 earnings season will kickstart from the 9th of October with Tata Consultancy Services, Tata Elxi declaring their Q2 results. Followed by HCL Technologies, Tech Mahindra on October 13 & 14. IT companies will be in focus as the entire sector is grappling with multiple headwinds, starting from structural slowdown to regulatory immigration changes, layoffs and more. Additionally, AI adoption at the enterprise level has led to massive and structural changes, changes in hiring practices, and changes in skill demand.

The latest H1 B Visa restrictions have sparked curiosity among investors about their impact on the companies. Here’s what to expect from the IT companies in Q2FY26 earnings season.

Muted topline

Amid the gloomy demand outlook, the topline for the large-cap IT companies is expected to remain in the low single digits. While mid-cap IT names may outperform the large peers, but continue to face headwinds. Tariffs led uncertainties are expected to remain a major driver for muted topline growth. Despite the global headwinds, currency depreciation is expected to remain a single tailwind for the sector. According to HSBC research, the top-tier large-cap companies expect to post 0%-2% QoQ growth, while mid-tier companies are expected to post 3%-5% QoQ in USD terms.

Tepid growth in margins

With muted topline, EBIT margins are expected to improve marginally, mostly due to favourable currency adjustments and cost optimisation measures. However, for companies like TCS, currency benefit is likely to be offset by wage hike, keeping the margins largely unchanged, according to HSBC Research. While the mid-tier companies may show better margin improvement than the large-cap peers, primarily due to better portfolio composition of healthcare, BFSI, coupled with better currency depreciation benefits.

All eyes on commentary

Considering the volatile environment and challenging times ahead, investors and market participants will be focusing more on the commentary for the remaining FY26 and FY27. According to HSBC Global Research, near-term discretionary spending among clients remains weak, but there are signs of acceleration in the next fiscal year, especially as adoption of artificial intelligence (AI) among enterprises gathers pace. Industry analysis highlights AI as the central driver of the next growth cycle for Indian IT services. Management commentary from leading Indian and global IT firms suggests that most client AI projects to date have focused on productivity improvements but are increasingly shifting towards driving business growth.

IT stocks' performance in 2025

The benchmark, NIFTY IT index, has been one of the top underperformers in 2025, with -22% YTD returns in this year. Among the index, TCS (-28%), Infosys (-21%), HCL Tech (-25%), Tech Mahindra (-16%) are among the top losers in the 2025 on a YTD basis. Broadly, IT stocks have been under immense selling pressure due to structural headwinds and uncertainties induced by tariffs and regulatory changes.