Tier 2 IT companies expected to outperform Tier 1 in Q4FY26 revenue growth: Centrum

NEW DELHI: Select Tier 2 IT services companies are expected to outperform their Tier 1 counterparts in revenue growth for the fourth quarter of the 2026 fiscal year, according to a report by Centrum. While demand remains largely unchanged over the last three months, mid-tier firms show stronger momentum through operational execution and vertical strength.

“Revenue growth is expected to be in the range of (0.5%) to +1.2% QoQ in USD terms for Tier 1 IT companies,” the report said. In contrast, Tier 2 companies are likely to report a revenue growth range of 1.3 per cent to 3.4 per cent. Persistent Systems leads the mid-tier category with a 3.4 per cent growth forecast, while Tata Consultancy Services tops the Tier 1 category at 1.2 per cent.

“The operating performance of IT Services companies will be muted for Q4FY26. The demand environment broadly remains unchanged over the last 3 months. Q4 is a seasonally weak quarter due to a lower number of working days,” the Centrum report stated.

The demand environment continues to see cautiousness as the fourth quarter experiences seasonal weakness from fewer working days. “There has been some improvement in discretionary tech spending in BFSI and Technology verticals. However, verticals such as Manufacturing, Automotive and Communications remain weak,” the report noted.

There are also concerns regarding the adverse impact of automation tools developed by Anthropic on the traditional business models of Indian IT firms. Clients remain cautious regarding AI adoption, which leads to longer decision-making cycles. However, the AI-led services market is expected to reach USD 300 billion by 2030, offering a significant tech cycle opportunity despite some deflationary impacts on productivity.

“The adoption of AI tools is expected to drive revenue per employee thus supporting overall productivity. IT companies remain focused on driving operating margin improvement through multiple levers such as lower sub-contracting costs, improving employee pyramid and increasing utilization,” the report said.

Operating margins are expected to stay broadly stable, supported by a 2.7 per cent depreciation of the Indian Rupee against the US Dollar. Most IT companies establish dedicated business units catering to Gen AI based solutions and many tangible use cases are already implemented across industry verticals.

“We expect Gen AI based deals to be significant drivers of incremental business growth in the medium term,” the report stated. “We expect Infosys to provide revenue growth guidance for FY27E at 3-6% with EBIT margin guidance of 20-22%. For Wipro, we expect the management to guide for revenue growth of 0% to +2% for Q1FY27E. HCL Tech is expected to provide organic revenue growth guidance of 4.0-6.0% for FY27E with EBIT margin guidance of 17-18%”, it stated. (ANI)