India's information technology sector delivered a significant earnings surprise in the March quarter of FY26, posting a 14.4% year-on-year rise in net profit, marking a sharp recovery from the 8.7% contraction seen in the preceding December quarter, according to data compiled by ET Wealth from Bloomberg. However, the sector faced severe market pressure on Tuesday, with the Nifty IT index losing more than ₹50,000 crore in market capitalisation within the first 15 minutes of trade, as reported by NDTV Profit. The index traded with cuts of more than 2.5% amid weakening global sentiment towards technology stocks. This turnaround comes at a time when the sector continues to grapple with concerns around artificial intelligence potentially disrupting traditional revenue streams, as well as muted discretionary spending and elongated decision-making cycles among global clients.
The Banking Financial Services and Insurance (BFSI) sector has emerged as a key growth driver for Indian IT services companies in FY26, with four of the five top tier players seeing increased revenue contribution from this vertical. According to company annual reports, TCS's BFSI share rose to 32% from 30.9% in the previous fiscal, while HCLTech's contribution increased to 21.5% from 20.7%. Infosys saw relatively modest growth with BFSI share rising from 27.7% to 28%, and Tech Mahindra's share went up from 16.1% to 16.3%. However, Wipro bucked the trend, seeing a decline from 34.3% to 34.1%. In absolute terms, these companies recorded 1-7.5% year-on-year growth in BFSI revenue for FY26, with the exception of Wipro which saw a 0.7% decline.
The sharp market decline was driven by overnight weakness across global technology markets, with the Nasdaq Composite falling nearly 2% in Wednesday's US session, as reported by NDTV Profit. Hong Kong's Hang Seng slipped approximately 1% and South Korea's KOSPI declined around 1.5%, reflecting broad risk-off sentiment against technology stocks globally. Among individual stocks, HCL Technologies Ltd. fell 3.12% to ₹1,096.80, Persistent Systems declined 3.18% to ₹4,771.50, and Oracle Financial Services shed 3.27% to ₹9,160.50. Infosys dropped 2.99% to ₹1,111, Tech Mahindra lost 2.47% to ₹1,442.30, and Coforge fell 2.56%. The Nifty IT index has now fallen more than 5% in trade this week, with HSBC pointing to cautious sentiment in the sector.
HSBC's latest analysis highlights significant challenges ahead for the IT sector, with the brokerage noting that accelerated M&As done by the IT companies may actually prove to be an incremental risk in the medium term. The firm expects AI deflation to continue eating away the bulk of incremental tech spend, thereby rendering anaemic growth for another six to eight quarters. HSBC expects the sector to bottom out in terms of valuation at 13-14x price to earnings, with growth expected to pick up from FY29 onwards. The currency depreciation is also improving cost competitiveness of Indian IT vendors, potentially supporting outsourcing demand from global BFSI clients through FY27. However, experts caution that while current deals are necessity-led backlog clearing from previous years, they have a ceiling compared to larger transformation deals.
