IT sector Q2 results begin: 5 developments the industry witnessed in September quarter

The IT firms are expected to report subdued numbers as near-term discretionary spending among clients remains weak. Key indicators show that the Indian IT sector has faced challenges related to global macroeconomic uncertainty, client cost optimisation, and delayed decision-making.

Major Indian IT firms such as TCS, Infosys, and HCLTech reported healthy large deal bookings and strong pipelines in the first quarter of FY26, yet actual revenue growth guidance remains restrained at 1-5% for the year.

Geopolitical tensions, supply chain challenges, and industry-specific factors (for example, caution in the BFSI and automotive verticals) continue to cause project deferrals or reduce discretionary spend.

In July 2025, credit rating agency ICRA reaffirmed a stable outlook for the Indian IT services industry, forecasting a year-on-year (YoY) revenue growth of 2-3% in US dollar terms for the fiscal year 2025-26.

ICRA's analysis, based on a sample of 15 leading IT companies representing approximately 60% of the industry's revenue, indicates that the sector will experience modest revenue growth of 2-3% in FY2026, slightly lower than the 2.9% growth recorded in FY25.

The subdued earnings momentum is largely attributed to uncertainties stemming from the US tariff imposition, which is expected to weigh on IT budget allocations in key markets.

"Notwithstanding some recovery in operating income rise in recent quarters, the Indian IT services industry is unlikely to witness any material uptick in earnings momentum in FY2026 owing to the uncertainties arising due to US tariff imposition," ICRA said.

However, analysts at HSBC Global Research note that while the near-term demand environment remains soft and unchanged, FY27 is likely to see a pick-up in demand driven by recovery in the US macro and an increase in demand from IT companies looking to drive enterprise-scale AI adoption.

H-1B Visa changes

US Commerce Secretary Howard Lutnick, in September 2025, said there will be 'a significant number of changes' in the H1B visa process before February 2026, when the new fee of $100,000 goes into effect, as he described as 'just wrong' the idea of 'inexpensive' tech consultants coming into the USA and bringing their families.

The Trump administration in early September 2025 announced a one-time fee of $100,000 for new H1B work visas, an order that will impact Indian professionals looking to work in the US on the temporary visas.

Standing behind US President Donald Trump in the Oval Office when the H1B proclamation was signed on September 19, 2025, Lutnick had then said that the $100,000 will be an annual fee for all H1B visas, including renewals and first-time applicants.

Amid widespread panic and chaos, the Trump administration clarified that the new fee requirement for H1B visas will not apply to current visa holders and is a one-time payment applicable only to new petitions.

HIRE Act

In September 2025, United States Senator Bernie Moreno from Ohio introduced the Halting International Relocation of Employment Act, or HIRE Act, to protect American workers from outsourcing by disincentivising US companies from chasing cheaper wages and hiring foreign workers.

The legislation, which was introduced in early September 2025, as reported by news agency PTI, is set to impose a tax on any company that employs foreign labour instead of Americans and will use the generated revenue to fund workforce development programmes with an aim to aid the American middle class.

The bill creates a 25% tax on outsourcing payments, defined as any money paid by a US company or taxpayer to a foreign person whose work benefits consumers in the United States.

Layoffs

In July 2025, TCS said it would lay off more than 12,000 employees, or 2% of its global workforce, this year. The jolt will be felt most in the middle and senior grades. TCS said the move is part of the company's broader strategy to become a "future-ready organisation", focusing on investments in technology, AI deployment, market expansion, and workforce realignment.

Industry body NASSCOM, following the layoff announcement by TCS, said some "transitions" and "workforce rationalisation" are expected in the near term as organisations shift toward product-aligned delivery models in response to increasing client demands for agility, innovation, and speed.

Without directly mentioning TCS, NASSCOM, in a statement titled "Workforce Realignment and Industry Transformation", highlighted that the tech industry is currently at an inflection point, with AI and automation becoming central to business operations.

"Over the next several months, we anticipate some transitions as organisations pivot toward product-aligned delivery models, driven by rising client expectations around agility, innovation, and speed. This shift is likely to reshape traditional service delivery frameworks and, in the near term, may lead to some workforce rationalisation as traditional skillsets are re-evaluated," NASSCOM said.

AI – central driver of next growth cycle

Analysts tracking the IT sector note the 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.

Enterprise-scale AI adoption is anticipated to ramp up in FY27, providing a significant new opportunity for Indian IT providers to deliver transformation projects and managed services. Accenture, which has a substantial chunk of employees in India, nearly doubled Gen AI bookings to $5.9 billion in FY25 (September-August).

Despite a challenging environment in the short term, sector commentary suggests a modest recovery is possible in FY27 as macroeconomic conditions stabilise in the US and Europe. The anticipated acceleration in demand for enterprise-scale digital transformation and AI-led projects could drive a 200- 300 basis point improvement in revenue growth for Indian IT services companies.

According to a report by Boston Consulting Group (BCG), the Indian AI market is expected to grow to over $17 billion by 2027, more than tripling its current size, driven by increased investments in enterprise technology, a flourishing digital ecosystem, and a strong pool of skilled professionals.

The nation makes up 16% of the world's AI talent, placing it behind only the US, reflecting both its demographic advantage and strong STEM education system.

Boston Consulting Group (BCG), in a report titled "India's AI Leap: BCG Perspective on Emerging Challengers", said India has a thriving AI ecosystem with over 600,000 AI professionals, 700 million internet users, and a surge of AI startups, with over 2,000 launched in the past three years.

Younger employees, perceived as more adaptable, are increasingly preferred to more experienced but less agile staff.

NASSCOM noted that hiring patterns would continue to evolve, with growing demand for deep, specialised expertise.

Rupee depreciation

The Indian rupee has been depreciating continuously against the US dollar and hitting new lows frequently. On Wednesday, October 8, in the early trade, the Indian currency traded around 88.75 against the greenback. Forex traders said the rupee is trading in a tight range as it remains under pressure due to continued capital outflows and geopolitical developments.

"The depreciation will definitely help exporters in the short run. But we need stability in the value against the USD," Federation of Indian Export Organisations (FIEO) President S C Ralhan said.

Most Indian IT companies earn a large portion of their revenue in US dollars (USD) or other foreign currencies. A weaker rupee means that when they convert that foreign revenue back into rupees, they get more rupees per dollar. This gives a natural boost to the topline (revenue) and margins, especially if costs are largely in India (rupee-denominated).

On the other hand, while most costs (like salaries) are in rupees, some costs — such as software licences, imported hardware, and cloud infrastructure — are paid in foreign currency.

A weaker rupee makes these imports more expensive, eating into the profit margin, explain experts.

Besides, a falling rupee may signal or lead to higher inflation, policy uncertainty, or interest rate hikes — all of which can impact investor sentiment, costs, and capital flows.