IT Sector Outlook 2026: Flat Earnings, Rising GCCs - What’s Next?

2025 has been adventurous to say the least. A cooling US economy, Trump’s tariff policy uncertainties, stock market corrections, and heightened India-Pakistan tensions have kept our economy on edge. With so much happening, it’s easy to lose sight of critical macroeconomic trends that could impact investment decisions across various sectors. 

So, amid all this, what are the key trends shaping the Indian economy? Well, that’s what we’re here to find out. We’re diving into a sector-specific analysis of key sectors in India to break down the biggest macroeconomic drivers you need to know before making any investment decisions.

This time, we are focusing on the Indian IT Sector.

IT Sector Overview

The Indian IT sector contributes 7.3% of the country’s GDP, accounts for approximately 43%–45% of the country’s total services exports, and employs about 5.8 million tech professionals. In FY2025, the sector achieved a revenue of $283 billion, reflecting a 5.1% year-on-year (YoY) growth. Despite this, it remains vulnerable to macroeconomic fluctuations, especially in its key export markets.

Revenue Breakdown of the IT Sector:

IT Services remain the sector’s backbone, contributing 48% of revenue at $137.1 billion. Meanwhile, Engineering Research & Development (ER&D) and Business Process Management (BPM) segments together brought in 39%, highlighting a shift toward specialised services amid rising digital transformation demand.

Earnings Snapshot

As the FY2025 earnings season wraps up, IT companies are facing a challenging macroeconomic environment, with global uncertainties weighing on client spending and decision-making cycles.

Here’s how major IT firms fared in Q4 FY2025:

1. Revenue Outlook: For FY2026, IT companies anticipate subdued revenue growth. Overall, revenue growth projections range from flat to moderate, with Infosys guiding 0%–3%, HCL Technologies 2%–5%, and Wipro expecting a 1.5%–3.5% decline in Q1.

2. Margins: EBIT margins are likely to stay under pressure in FY2026 as companies focus more on growth and converting contracts rather than immediate profit. With investments pouring into AI, big deals, and cost-cutting measures, any meaningful recovery in margins is expected to take time.

3. Deals & Pipeline: In terms of new deals, TCS and HCL Technologies seem cautiously optimistic, citing strong TCV (total contract value) and deal pipelines. Meanwhile, Wipro and LTIMindtree are facing delays as clients focus on cost-cutting and vendor consolidation amid economic uncertainty.

4. Risks: Major risks cited by the IT Companies include client spending cutbacks, elongated deal cycles, tariff-related uncertainties, and sector-specific pressures in auto and manufacturing. Despite robust pipelines, companies anticipate a slower ramp-up in large deals and a potential recession impact.

Macroeconomic Outlook for FY2026: Key Factors to Watch

🔴 Slowdown in the US Economy

The US is a major market for India’s IT sector, making up 54.7% of IT exports in FY2024. Naturally, when US business sentiment dips or tech spending slows down, its ripple effect can be seen in India.

And that’s exactly what’s happening. In March 2025, the US Fed cut its GDP growth forecast from 2.1% to 1.7% for FY2025 — the slowest pace in eight years, pandemic aside. With further downgrades expected in 2026 and 2027, large outsourcing contracts could feel the pinch, especially as US businesses tighten their budgets and hold back on spending.

🟢 Expansion in India’s Services Sector Activity

In India, the IT sector’s domestic revenue makes up around 20% of the total, leaving it more sensitive to global economic changes than local ones. But that could be shifting. NASSCOM projects that domestic IT demand will outpace exports in FY2025, with domestic revenues expected to grow by 7% to $58.2 billion, while exports are likely to increase by 4.6% to $224 billion.

Supporting this trend, the HSBC India Services PMI rose from 56.5 in January 2025 to 58.7 in April, indicating stronger business activity and employment. In contrast, the US ISM Services PMI dropped from 52.8 to 51.6 in the same period, signalling more cautious spending in the US market.

The line graph below reflects the diverging trends in the Indian and US Services markets for the last 12 months:

🟡 Currency Fluctuations

Over the past three months, the U.S. Dollar Index (DXY) has steadily declined, dropping by 4% in April 2025 alone. By May 15, it fell to 100.7, driven by weaker inflation data that raised hopes of Fed rate cuts in 2026. Lower rates typically reduce returns on U.S. assets, leading to capital outflows and a weaker dollar.

What’s causing the dollar to weaken?

• Trade Policies: Trump’s broad and unpredictable tariff policies have spooked investors, creating uncertainty and pushing the dollar down.
• Capital Outflows: Institutional investors are moving away from U.S. assets, redirecting funds to European markets as U.S. policymaking becomes more erratic.
• Economic Indicators: With the US inflation data coming in weaker than anticipated and signs of slowing growth, the US market is bracing for rate cuts, further pressuring the dollar.

Now, a weaker dollar is typically a good thing for India’s import bills, but it’s a mixed bag for IT companies earning revenues in USD. A strong rupee could mean exchange losses and slimmer margins for major IT exporters.

Here’s how much revenue top IT players derive from the US market and how they performed in constant currency terms in Q4 FY2025:

🟡 Global Capability Centres (GCCs) Boost IT Hiring Amid Subdued Sector Growth

According to Naukri.com’s Jobspeak Index, the IT/Software Services sector recorded a modest 3% YoY growth in hiring in April 2025 — a slow start to FY 2025-26 amid cautious sentiment and softer demand. In comparison, hiring in core sectors like Pharma and Real Estate grew by 14% and 11% respectively.

However, Specialised tech roles saw stronger demand, with hiring rising significantly for:

• Full Stack Data Scientists (+30%)
• Big Data Testing Engineers (+26%)
• Data Platform Specialists (+28%)

Despite the uptick in niche roles, overall hiring remains conservative. Companies are focusing more on retaining employees, with attrition rates across NIFTY IT firms ranging from 12% to 15%.

GCCs : A Bright Spot in IT Hiring:

GCCs are emerging as a key driver of IT employment, reporting a 10% YoY increase in hiring, one of the strongest growth segments in FY 2025. According to NASSCOM, GCCs added 1,10,000 out of 1,26,000 new IT jobs, reinforcing India’s role as a global hub for back-office, R&D, and tech support services.

With over 1,750 GCCs now operating in India, the sector is expected to continue fueling tech-led growth, focusing heavily on AI, digital engineering, and advanced data capabilities over the next five years.

🔴 IT Sector Faces Intensified FII Outflows

Since September 2024, the IT sector has seen significant FPI outflows, totaling ₹1.32 lakh crore. In April 2025 alone, the sector recorded the highest FII outflows, with ₹15,213 crore exiting — a clear sign of investor caution and growing uncertainty.

What’s driving these exits?

• Disappointing Earnings: Q4 FY25 earnings painted a grim picture, with companies like Infosys and Wipro reporting flat to negative revenue growth expectations for the next year.
• Wavering Demand: Export markets, especially the US, are showing signs of strain as tech spending slows down, further dampening investor sentiment.

🟢 India’s Export Shift: Services Outpace Merchandise

India’s export dynamic is undergoing a noticeable shift, with services exports outpacing merchandise exports in both growth and share. In FY2024- 25, services exports jumped by 13.6% to USD 387.4 billion, driven by strong gains in software services and business consultancy. This now accounts for 88.5% of the merchandise export value.

Meanwhile, merchandise exports remained flat at USD 437.7 billion, with declines in Petrol, Oil and Lubricants (POL) and gems & jewellery offsetting gains in electronics and pharmaceuticals.

The trend is expected to persist in FY2025- 26, with services exports projected to rise by 7.8% to USD 417.7 billion — narrowing the gap to 94.3% of merchandise exports. This underscores India’s growth in global services trade as demand for goods remains tepid.

Growth Drivers for the IT Sector in 2026

1. AI-Driven Growth and Digital Transformation:

Artificial intelligence is set to be a major growth engine for India’s IT sector. AI spending is projected to surge at a 35% CAGR, reaching $9.2 billion by 2028. The momentum is largely driven by the expansion of Generative AI and AI-enabled SaaS, which attracted over $18 billion in investments in FY25. 

2. Resilient ER&D Segment:

Engineering Research & Development (ER&D) continues to be the fastest-growing export segment, with a projected 7% growth in FY2026. In FY2025, ER&D exports hit $47 billion, making it clear that India is positioning itself as a global hub for R&D and product innovation. 

By 2026, the segment is expected to capture a 10-12% share of the global ER&D outsourcing market, driven by rising demand for digital product development and tech-driven solutions.

Final Thoughts

India’s IT sector has stepped into FY2025- 26 with a complex set of dynamics. While external pressures like the US economic slowdown, currency fluctuations, and FPI outflows present clear challenges, the sector’s expanding domestic market and increasing focus on digital transformation provide reasons for cautious optimism. Companies that can balance cost controls with investments in AI and emerging tech may find themselves well-positioned to weather the global uncertainty and capture new growth opportunities.