TCS Faces Challenges Amid Weak IT Spending
The delayed recovery of Indian IT companies, including TCS, is expected to lead to increased competitive intensity, with modest revenue increases and growth estimated to be in mid-single digits. The sector's performance will be crucial for the country's economy, with large-cap IT companies likely to fare better than smaller ones.
Indian IT companies, including TCS, are expected to face a delayed recovery due to weak discretionary spending and global trade tensions, with the Indian IT index declining by 15.3% this year. Analysts predict a challenging fiscal 2026, with modest revenue increases and competitive pressures from early AI adoption. The sector's growth is expected to move back to normalcy, with numbers estimated to be in mid-single digits, except for one-offs.
The recent quarterly report from Accenture highlighted persistent weakness in discretionary spending and overall demand, which has raised concerns about the Indian IT sector's performance. Global trade tensions, driven by new US tariffs, have heightened concerns about a slowdown in the US market, a critical market for Indian IT firms. This has led to a decline in froth and lowered expectations from investors, with the financial year 2026 not looking better due to surrounding uncertainty.
Girish Pai, head of institutional research at BOB Capital Markets, believes the Indian IT sector has not seen its worst yet. He expects growth to pick up in 2027 and favors large-cap IT companies over smaller ones, citing better valuations. His top picks include Tech Mahindra Ltd. and First Source. Pai's predictions suggest that the sector's growth will be modest, with increased competitive intensity in other segments due to the delayed recovery.
The Indian IT sector's performance is crucial for the country's economy, and the current challenges faced by companies like TCS, Infosys, Wipro, and HCLTech will be closely watched by investors and analysts. As the sector navigates these challenges, it is likely to undergo significant changes, with a potential shift towards more competitive and innovative business models.