Citi: Indian IT to Remain Weak in FY26

Expressing a bleak outlook in the Indian IT space, a Citi research noted that the sector will face a slowdown for the third straight year in FY26 due to weakening growth and margin outlook.

Infosys Ltd., and HCL Technologies Ltd., remained top picks over other large names by the brokerage. The brokerage reiterated, “FY26E is the third slow growth year for our Indian IT coverage.”

It added, “While a tough macro impacts decision making, we believe the slowdown is due to a combination of factors and not only macro.”

The improved growth visibility will be the key driver for stock performance and that seems to be lacking post the approximately 24% underperformance of NSEIT to NIFTY CYTD, the brokerage observed.

“The past few years have seen consistent downgrades in growth estimates across most of the sector. Given these factors, it is difficult to predict a growth recovery,” it added.

Analysts said, “Margins are starting to see pressure given: third year of slow growth; heightened competitive intensity and asks for AI driven productivity; need for investments. Visa risks need to be monitored.”

Citi said that prioritisation of clients’ spending towards AI is not benefiting IT services for now. For several years, revenue earned by IT space are in line with the S&P 500 revenue growth. However, S&P 500 operating performance continues to face challenges.