Will FY26 be a washout year for the IT services industry?

What can we deduce from the earnings seasons so far?

The latest earnings season has laid bare the shifting contours in the global IT services industry. IT services bellwether Tata Consultancy Services (TCS), missed revenue estimates in Q1FY26, echoing a broader caution among clients amid tariff-related uncertainty and deferred discretionary spending.

Global technology services and consulting major, Accenture, posted a third quarter (March-May 2025) revenue of $17.7 billion. Despite beating revenue expectations, the Dublin, Ireland-headquartered company saw a second consecutive drop in new bookings in its third quarter.

HCL Tech posted revenue growth of 1.34% sequentially to $3.55 billion for the June quarter, but missed profit estimates, while Tech Mahindra surprised with profit growth and an uptick in deal wins.

Together, these results paint a picture of an industry in flux — caught between changing technology needs of clients led by artificial intelligence (AI), slow decision-making in consumer-facing, tariff- impacted sectors like retail and auto, vendor consolidation, clients opting to grow captive units or Global Capability Centers (GCCs), besides geopolitical headwinds.

Companies are putting up a brave front, but these could cast a long shadow on this fiscal year.

What are the top honchos saying?

K. Krithivasan, chief executive officer and managing director, TCS, said continued global macroeconomic and geopolitical uncertainties caused a demand contraction. At Accenture’s second quarter earnings call in June, Julie Sweet, CEO of Accenture, maintained that the company remains on track for strong growth, though the company’s government business (accounting for 8% of its global revenue) has been impacted due to US federal policy changes.

Accenture Federal Services contributes 8% to the company’s global revenue ($64.9 billion in 2024). “What we’ve seen in recent weeks is an elevated level of uncertainty. There’s a global conversation around tariffs, not just in the Americas but in Europe as well,” Sweet said.

Despite a better-than-expected performance, Mohit Joshi, CEO of Tech Mahindra, said the macro picture is still hazy. “Tariff-impacted sectors are not conducive to discretionary spending. Overall market is volatile, and there’s a slowdown in auto and manufacturing. Banking is steady and hi-tech is volatile. We do see recovery in the second half.” C. Vijayakumar, CEO & managing director, HCLTech, said that the company’s operating margin was impacted by lower utilization and additional GenAI and GTM (go to market) investments.

Meanwhile, a Redditor (posting on Reddit, a social news aggregation and discussion platform) said, “The next decade won’t look like the last. Those who pivot to AI, develop deep domain expertise, and automate delivery models will thrive. Others might fade.”

What is the outlook for the IT services business?

The near-term outlook remains cautious. TCS’s CEO flagged intensified delays in discretionary spending and project starts, with clients deferring decisions until there’s more clarity on US tariffs and fiscal policy. Accenture’s restructuring around AI signals a pivot toward reinvention, but even it is grappling with slower deal closures.

TCS revenue increased just 1.3% YoY, with four of six verticals declining. International revenue dipped 0.5%. Accenture’s revenue grew 8% YoY, but bookings fell 6%, indicating future demand softness. Noida-based HCLTech’s revenue was up 8% YoY, but net profit down 10%, reflecting margin pressure. And Tech Mahindra’s revenue increased 3% YoY and profit surged 34%, signaling operational discipline and deal momentum. The broad consensus? Tech services growth will likely be muted in the short term, with FY26 guidance reflecting low single-digit expansion across most players.

Is there stress in tariff-impacted sectors?

Yes, and it’s becoming more pronounced. The uncertainty around US tariffs—especially in consumer-facing businesses such as automobiles and retail and others, including manufacturing and communications—has led to deferred projects and cautious spending. BFSI, which is the largest vertical for most companies and accounts for around 35% of the industry revenue, remains steady.

TCS saw year-on-year (YoY) contraction between 3% to 9.6% in various verticals, including consumer, healthcare, manufacturing, communication and media. While BFSI, technology, energy and utilities saw 1% to 2.8% growth in the same period. For Tech Mahindra, the manufacturing business declined 4% and technology, media and entertainment fell 3.3%. Among geographies, Europe grew 11.7% YoY, but Americas, which accounts for around half of its business, saw a 5.9% YoY revenue drop.

For HCL Tech, much of the incremental revenue came from banks and financial institutions, which make up around 20% of the company’s business. The company narrowed its revenue guidance for the full year. It now expects revenue growth between 3% and 5% in constant currency terms, from 2% to 5% earlier.

Is Agentic AI becoming part of conversations?

The market is fast shifting to agentic AI (AI systems designed to operate with a high degree of autonomy), but most IT services companies remain in pilot project mode, unable to convert proof of concepts into large projects.

Accenture leads in this space. It has also set up a new division focused on AI called `reinvention services’, which involves merging strategy consulting, technology, and operations into a single unit. For Accenture, GenAI bookings for the quarter hit $1.5 billion with revenues exceeding $700 million.

In the first nine months of its fiscal year Accenture has secured $4.1 billion in GenAI business and generated $1.8 billion in revenue. Indian IT services players do not report AI revenue separately, despite claiming that AI is part of every deal.

How are the new deal bookings?

Deal momentum is mixed, with signs of stress in closures despite healthy pipelines.

TCS won deals worth $9.4 billion, up from $8.3 billion in the year-ago period, but down from $12.2 billion q-on-q. Accenture won $19.7 billion new deals, down 6% y-o-y. HCLTech won $1.81 billion worth of new deals in the quarter, while Tech Mahindra saw a 44% jump in new deal wins YoY at $809 million in Q1.

Will IT services survive multiple disruptions, from AI to tariffs?

The IT services industry is at a crossroads. Tariff uncertainty and cautious client behaviour are dampening near-term growth, but AI—especially agentic AI—is emerging as a strategic lever. Accenture’s bold restructuring may set the tone, but TCS, HCLTech, Wipro, Infosys and others must move beyond pilots to monetization.

Deal pipelines remain healthy, but execution delays are the new norm. Reditor pointed out that clients are more interested in AI solutions rather than digital transformation, a pivot that Indian IT should make quickly. The winners will be those who can translate AI into measurable outcomes.

Will GCCs spoil the IT services party?

According to a Confederation of Indian Industry (CII) Global Capability Centre (GCC) report this week, India has established itself as the global hub for GCCs, hosting over 1,800 centres as of FY25. By 2030, India could have almost 5,000 GCCs with a direct employment of 4-5 million, the report noted.

A ramp-up in GCCs will impact the work shipped to third-party providers, the IT services companies. Cognizant, for example, has raised concerns about potential risks stemming from GCCs operated by its clients in its 2024 annual report. Some IT services companies including Infosys, HCLTech, Wipro, Tech Mahindra are partnering with GCCs, helping them set up centers. But going forward, companies will have to compete not only with rival services providers but also with GCCs for business. A tough task in an already challenging business environment.