Indian information technology (IT) services companies reported lacklustre growth in the second quarter, at a time when the macroeconomic environment did not deteriorate further.
HCLTech emerged the best performer among India’s top six IT services firms with a constant-currency growth rate of 4.6 per cent, even though uncertainties continued to persist.
While some of the top players saw low-single-digit constant-currency growth during the period ended September 30, others witnessed negative growth.
HCLTech’s constant currency growth was higher than LTIMindtree’s (4.4 per cent) and Infosys’ (2.9 per cent), helping HCL to cement its place as the fastest-growing IT services company in a difficult environment.
“HCLTech is the fastest-growing largecap IT services company, and its all-weather portfolio remains the best largecap bet in an uncertain macro environment,” Motilal Oswal said in a research report earlier this week.
It also became the first company to call out revenue from advanced artificial intelligence (AI), which crossed $100 million in the second quarter.
Executives remained conservative on growth prospects as companies walk the tightrope to manage policy uncertainties and the impact of AI, which is interrupting the software development life cycle, and improving efficiency.
While most companies record healthy total contract value (TCV), they prefer to wait and watch on how long it takes for those deals to materialise — as is often the case when spending is tight.
That is why a $10 billion TCV from TCS, a 1.2 billion pounds deal from NHS for Infosys, or three large deals for LTIMindtree in the last six months do not immediately mean that the industry is out of the woods.
Gaurav Vasu, founder, UnearthInsights, believes that for FY26, the services industry will not grow more than 3-4 per cent even though the level of uncertainty has come down.
A low single-digit growth for the third consecutive year would be almost unprecedented for Indian IT service providers.
And, it only underscores the structural challenge they face, going forward, which has only been accentuated by AI.
Phil Fersht, founder and CEO of HfS Research said the key takeaway is that the sector has moved past its correction phase but not yet into high-growth territory.
“FY26 should be modestly better than FY25, with selective acceleration in the second half as clients restart modernisation programmes.
"Growth will increasingly depend on non-linear levers, such as AI, automation, and outcome-based pricing, rather than adding more people.
"The providers that build scalable AI platforms and intelligent delivery models will set the pace for the industry’s next chapter.”
The top six companies added 3,510 people in the second quarter and 7,377 during the first half, compared to 19,767 and 18,261, respectively, during the comparable periods a year earlier.
The headcount addition was dragged down in the recently-concluded quarter mainly due to the huge layoffs by TCS.
All the other firms saw headcount addition with Infosys adding 8,203 people.
Analysts, however, cautioned that it is premature to link headcount growth to revenue growth or demand coming back as some individual client needs may have spiked up.
In the long run, the pyramid model, which runs on adding more people to the bottom, is likely to change.
This comes as AI makes many entry-level jobs redundant and there is a gradual decoupling between revenue and headcount.
Net addition for the full year is expected to remain stagnant.
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