India’s IT sector is going through a turbulent period. The financial results of the first quarter of the fiscal year 2026 disappointed the majority of the large IT companies. The companies witnessed margin pressure and declining revenue in the quarter.
The Q1 results led to a correction in the stock price of major IT companies. Additionally, the top IT companies have also come down, leading to a renewed interest from private equity investors.
Here are the key observations made by Kotak Securities on the Q1 performance of the leading IT companies of India.
Week revenue in Q1
Four of the big five IT companies in India posted a revenue decline in Q1. TCS, HCLTech, Wipro and Tech Mahindra reported a QoQ revenue decline of 3.3 per cent, 0.8 per cent, 2 per cent and 1.4 per cent, respectively. Only Infosys posted a revenue growth of 2.6 per cent in the quarter.
Revenue of IT companies from retail, manufacturing and healthcare verticals suffered in the quarter. Only the BFSI segment of the IT companies saw a 2.7 per cent QoQ growth.
The IT companies said that, primarily, the decline in revenue was due to a weak demand, low discretionary spending and the effect of developments around tariffs.
Margin decline
EBIT margins of TCS, Indosys and HCL decline on a YoY basis in Q1FY26. The low margins have increased the profitability pressure on the management. The company have tried to protect their margins through measures such as cost controls and wage deferrals.
The large IT companies are sacrificing their margins for the big deals as in an effort to recover revenue.
Mid-size companies outperform
While the leading IT companies suffer a revenue and margin growth, their smaller peers are seeing a good revenue growth. Kotak Equities says that this trend of smaller companies outperforming the larger companies could continue.
However, some key mid-sized companies fell short of expectations in the quarter.