IT Sector Outlook Analyzed

Key Points

• Q3 IT growth will be weak due to seasonal slowdown and hiring freezes.
• Investors will watch for signs of future business, not just current results.
• Companies are delaying large spending projects until 2026 budgets are clearer.
• AI spending is expected to rise, but it will take time to impact growth.
• Some industries (like BFSI and travel) are doing better than others.
• Margins will be squeezed by higher wages and investment costs.

The tech companies that make computers and software (called IT companies) often have a predictable pattern. In the fall (October, November, December), they usually don’t grow much because many employees take a short break, called a “furlough.” These companies make a lot of money, but they can’t always grow every quarter. It’s like a soccer team having a slow month – they still have a good season overall.

A report from Motilal Oswal, a company that helps investors, says that this fall will be another slow one for these companies. They think the main thing investors will look at isn’t just how much money the companies are making right now, but what the companies plan to do in the future. They’ll pay attention to what companies are promising their customers and how much money they’re spending on new ideas.

Here’s what the report predicts: Big IT companies like TCS and Infosys won’t grow much this fall, maybe only a little bit. Smaller IT companies might do better, but it’s still not a huge jump. Companies are waiting for businesses to decide how much they want to spend on new technology. This is like waiting for a school to decide how much money they want to spend on new computers before buying them.

Some industries within the IT world are doing better than others. For example, companies that help banks (called BFSI) are still doing okay. Companies that make special software are a bit slow, but travel and transportation companies are getting more business. Manufacturing is a mixed bag; some companies are struggling, but others are doing well.

Because of the hiring freezes and the slowing demand, the cost of doing business is going up. Companies have to pay their workers more money, and they’re also spending more money on new projects. This can make it harder for them to make a profit.

Looking ahead to 2026, Motilal Oswal thinks companies will start spending more money on Artificial Intelligence (AI). AI is like teaching computers to do things that humans can do. This could lead to more business for IT companies, but it will take time for the spending to really start growing.

The report suggests that companies are already investing in AI by buying other companies and making partnerships. This is a smart move because it will help them be ready for the future. Experts believe that AI spending will pick up around mid-2026, which will help the IT sector grow faster in the years to come.

Motilal Oswal has some companies they think are good investments. They like Infosys and Tech Mahindra (big companies) and Coforge and Hexaware Technologies (smaller companies). They think Infosys is a good choice because it’s helping companies use AI, and Tech Mahindra is working hard to improve its business.

Investing in technology requires looking beyond immediate results and anticipating future trends.