After nearly two years of muted tech spending, the IT services industry is positioned for a year of recovery in 2026 as early signs that the prolonged demand slowdown is beginning to ease emerge. Discretionary cycles that stalled transformation programmes through 2023–25 are expected to gradually unfreeze, and clients are expected to re-enter medium-term planning.
Experts expect the upward curve to be gradual, however. “At the start of 2025, it seemed like the slowdown headwinds are behind us, only for a new set of challenges to emerge. So cautious optimism will set the tone for the year,” Pareekh Jain, founder and CEO, EIIRTrend said. IT firms will keep a watch on the turnaround horizon as pricing stabilises, and stalled segments show the first signs of life.
The clearest markers of a genuine turn, however, will be the rebound of discretionary spending in BFSI, retail and healthcare, and a measurable rise in enterprise-grade AI adoption. “Key signals to watch include the rebound of discretionary spending … coupled with rising demand for enterprise-grade AI solutions that deliver tangible business outcomes, not just productivity gains. This of course will require IT firms to build deep domain expertise,” Nitin Bhatt, Technology Sector Leader, EY India said. He added that a shift in focus from headline TCV wins to the speed of TCV-to-revenue conversion would signal that clients are moving from signings to execution.
BFSI Catalyst
In 2025, one of the biggest challenges faced by Indian IT majors was the slowdown in deal ramp-ups as policy uncertainty and geo-political pressures plagued client decision-making.
Across verticals, demand however, may continue to be uneven, since a lot still depends on macro-economic triggers. “For example, BFSI discretionary spending could remain soft in the first half and will pick up only once lending recovers. This in turn will depend on the timing and quantum of rate cuts in the US,” an analyst tracking the sector with a leading brokerage in Mumbai said.
Manufacturing may stabilise post tariff clarity, though retail will be completely dependent on the consumer sentiment as many global economies grapple with inflation. Analysts thus expect most firms to post revenue growth of around 6–7%.
Pricing by IT majors is expected to be a balancing game. While client budgets are expected to loosen slightly, their expectations from their IT partners are also changing, experts observe.
“While IT firms will be able to offer better discounts and be competitive in pricing on account of a weakening rupee, clients are now also demanding they pass on productivity and efficiency gains. Together with the AI-led restructuring the IT firms must undertake, it could put pressure on margins,” Jain said.
Additionally, IT firms will continue to be in the investment phase when it comes to AI. Apart from restructuring costs – like the Rs 11,000 crore one-time expense seen in Tata Consultancy Services’ September quarter numbers – firms will have to invest in creating platforms and reskilling their workforce to meet AI-led needs. For TCS, capex will ramp up on account of its AI-infra ambitions
High Cost of the AI Pivot
The new technology has already signalled the need to shift from headcount led delivery models to product and solution led models. This, experts said, creates a duality for IT firms which will require some rewiring.
“Till now, IT firms depended on fresher hiring to deploy headcount on projects and maintain a strong bench strength. Now, projects may require fewer, but mid-to-senior level employees which means the margins that can be driven will shrink,” an analyst said.
Already, utilisation levels have plateaued in the mid-80’s for most IT firms, indicating a lower dependence on bench strength.
This is expected to pose a major execution risk to the industry’s ability to move away from legacy constructs as AI compresses effort hours. “With AI cutting coding and testing hours by 30–40%, clinging to T&M pricing will compress revenues. IT firms need a delivery and operating model that decouples revenue and headcount,” Bhatt said, warning that incumbents may lose ground to AI-native and industry-specific platform players. He added that failure to reinvent delivery for a “human + AI” world risks obsolescence, and that leaders must break the traditional people pyramid and redesign work to remain competitive.
The H1-B visa quandary, however, may be behind the industry. While the US’ policy changes regarding the once much vied visa made headlines throughout the year, in 2026, it could be a nondescript footnote in IT firms’ planning manuals. Most large cap firms have called out a reducing dependence on the visa, and the trend is expected to continue. Experts said that it would be too early to estimate the level of impact on margins local hiring in the US will result in.