Indian IT firms witness sustained demand for services despite macro uncertainties

Some of the largest banks in the world, such as JP Morgan, Wells Fargo, Bank of America, Citi, Goldman Sachs, and Morgan Stanley are set to report their annual earnings this week. While US Fed-related issues and macro uncertainties continue to persist, Indian IT firms that have started reporting their third-quarter fiscal numbers have indicated sustained demand for their services.

Despite being a seasonally weak quarter, both Tata Consultancy Services (TCS) and HCLTech registered growth, beating market expectations. While the former reported revenue of $7.5 billion, up 0.6% sequentially, the latter recorded revenue of $3.7 billion, up 4.1% QoQ. HCLTech also raised its overall guidance band from the earlier 3–5% YoY to 4.0–4.5% YoY in constant currency (cc) terms. It also expects its largest revenue segment—the services business—to grow in the range of 4.75–5.25% YoY in cc terms, up from the earlier 4–5% YoY, implying a lift of 50 basis points at the midpoint.

Starting FY26, demand in the banking and financial services space has seen a gradual improvement from the bottoming out in December last year. For instance, over the last four quarters, the BFSI vertical for TCS has grown 2.5% (Q4FY25), 1.0% (Q1FY26), 1.0% (Q2FY26), and 1.6% (Q3FY26), while HCLTech has seen its financial services vertical grow 0.7% (Q4FY25), 6.8% (Q1FY26), 11.4% (Q2FY26), and 8.1% (Q3FY26) over the same period.

TCS said in Q3FY26 its overall BFSI total contracts worth $3.8 billion were up by $600 million compared to Q1, including a mega deal in North America. Keeping the seasonality of the quarter aside, TCS CEO & MD K. Krithivasan said the overall deal momentum gives the company confidence that BFSI will return to growth. On demand drivers, TCS sees BFSI companies focussing on cost discipline while prioritising targeted investments in resilience, compliance, and operational efficiency, with technology expenditures centred on validated solutions and simplified architectures. “AI adoption is increasing, underpinned by robust governance and regulatory alignment, and regulatory implementation is proceeding cautiously. Retail banks are focussed on enhancing customer experience, adopting AI applications, leveraging ecosystem partnerships, and strengthening fraud prevention efforts. Corporate banks are modernising their operations through cloud migration and digital enhancements. The payment sector is experiencing rapid transformation, driven by regionalisation, and capital markets and asset management sectors maintain strong performance,” he said on the analyst call.

Similarly, HCLTech management sees a wave of AI-driven modernisation initiatives as a top priority for BFSI clients. “Modernisation and SDLC (software development life cycle) is where the biggest opportunity lies for enterprises, and we are seeing good demand. Obviously, for these projects, clients take one segment of modernisation, see success there, and then continue to scale,” said C. Vijayakumar, CEO & MD of HCLTech. These modernisation deals are also seen as a growth opportunity over the next 24–26 months. “There are certain verticals—financial services, telecom, healthcare—that rely heavily on custom software and will present a significant opportunity,” he added.

Earlier, analysts had expressed hope for a better fiscal ahead for IT companies. HSBC Global Investment Research, in its note on Indian IT services, said commentary from IT industry customers signals improved confidence in the business outlook and, hence, a higher propensity to spend on IT in FY27. “We think business outlook sentiment is close to March 2025 levels, implying the uncertainty seen post-Liberation Day is largely in the past. More importantly, there is some visibility on the deflationary impact of AI on IT services, while monetisation of AI for business-accretive deals is also closer. We still see AI deflation on IT services at 8–10% over 2–3 years, with 2025 already seeing a significant share of this impact,” the note dated January 5 said.

On the other hand, Motilal Oswal Financial Services analysts expect some caution on spending. “Amid macro-tariff uncertainty and a new tech cycle, we believe clients remain cautious about committing incremental spending to large programs. As a result, we expect demand to stay steady, at best marginally incremental, until January 2026 as planning cycles reset and budgets firm up,” the brokerage said in its ‘3QFY26 Preview: Indian IT: Looking beyond 3Q noise’ report.