IT sector outlook: Demand shows early stabilisation; AI productivity gains keep growth muted
India’s information technology (IT) services sector is showing tentative signs of demand stabilisation, even as visibility into calendar year 2026 remains uncertain, according to a report by Goldman Sachs.The report highlighted that major IT firms reported sequential revenue growth in the latest quarter, with the sector expanding 1.5 per cent quarter-on-quarter. “While there are early signs of demand stabilisation, visibility into CY26 remains poor, and company commentary suggests AI-related productivity pass-throughs may be becoming more mainstream, which may keep multiples depressed,” the report said.
Analysts expect the December 2025 quarter to continue this positive trend, with an estimated 1.7 per cent sequential rise in services revenue.For the full financial year 2026, revenue growth is expected to remain muted at around 1.1 per cent year-on-year, improving to about 5.4 per cent in FY27. The report attributes the cautious outlook to subdued client spending amid macroeconomic uncertainties and the ongoing impact of artificial intelligence (AI)-driven productivity gains, which are beginning to compress traditional growth avenues.“However, our full year FY26 growth estimate of +1.1 per cent YoY (+10 bps vs earlier) and FY27 estimate of +5.4 per cent YoY (-10 bps vs earlier) are largely unchanged,” it added.Operating margins improved across most IT players in the second quarter of FY26, supported by currency tailwinds and internal efficiency programmes.Headcount additions turned positive after several quarters of decline, indicating early signs of recovery in hiring. “Headcount trends in 2Q were better than 1Q for most,” the report noted.Large deal activity remained strong during the September quarter, reflecting renewed client confidence in long-term digital and efficiency programmes. However, pricing pressure persists, and project ramp-ups are proceeding at a measured pace. Sector guidance for upcoming quarters suggests a moderate 0.5-2.5 per cent sequential growth trajectory, indicating a cautiously optimistic sentiment.Goldman Sachs cautioned that the medium-term recovery will depend on a revival in global discretionary IT spending and the stabilisation of AI-led productivity gains. Growth in FY27 is expected to improve to mid-single digits, supported by sustained deal pipelines, margin efficiency, and potential rebounds in key verticals, including financial services, healthcare, and manufacturing, ANI reported.Despite these early positive signs, the industry continues to face challenges of subdued demand visibility, client budget rationalisation and shifting technology spending priorities, limiting expectations for a meaningful acceleration in growth before the next fiscal year.
