Indian IT sector shows sequential recovery in Q2FY26; tier-2 techs lead growth

NEW DELHI: The Indian IT sector witnessed a return to positive sequential growth in Q2FY26, driven by Tier-1 techs reversing declines seen over the past two quarters, while Tier-2 techs continued to outperform both in growth and margins, according to sector commentary, according to a report by Axis Capital.

The sectoral update report added that Tier-1 companies, including Infosys and Wipro, reported growth broadly in line with expectations, with Tech Mahindra posting a slight upside surprise. The report added that tier-2 players such as Coforge and Persistent Systems led sequential growth, while BPO-focused firms like eClerx and Sagility delivered steady performance.

Within the ER&D segment, Tata Technologies surprised positively, driven by non-automotive business, although the broader segment faced challenges due to continued automotive drag, the sectoral update report added. It further said that the margins across the sector showed improvement, aided by currency tailwinds, delayed wage hikes, and the absence of seasonal costs.

Offshore-centric BPO firms saw the highest margin gains, while ER&D companies, except Tata Tech, fell short of expectations due to weak growth. Notably, HCLTech maintained an EBIT of 17-18 per cent, Infosys at 20-22 per cent, and Sagility slightly upgraded its adjusted EBITDA margin outlook following strong H1 performance.

Headcount addition picked up modestly in Q2, signalling early signs of demand stability. Tier-1 techs, excluding TCS, saw sequential hiring gains, led by Cognizant (6,000) and Infosys (8,200, the highest increase since Q2FY23). Freshers hiring is expected to rise further in FY26 to manage average resource costs, mirroring trends among global peers like Capgemini.

The report notes potential near-term benefits from Gen-AI-driven spend of the IT companies, which could further support business cycle improvement. (ANI)