Demand, margin woes persist for IT

Brewing trouble

- Harsha Jethmalani

Investors in shares of information technology (IT) companies continue to search for demand tailwinds after the June quarter (Q1FY26) earnings disappointed even amid low revenue growth expectations. The ongoing global macroeconomic instability due to tariffs is a deterrent for discretionary IT spending, causing further delay in clients' decision-making cycles.

With companies appearing to have exhausted important margin levers, weak demand could now weigh on profitability. A tight leash on costs and efficiency improvement measures have been used to cushion margins until now.

In Q1FY26, out of 15 large- and mid-cap IT companies, 60% missed on margin estimates (versus 33% a quarter prior), with some noting incremental margin pressure ahead, said BNP Paribas Securities India. While 53% exceeded consensus revenue growth estimates in Q1FY26 versus 20% in Q4FY25, it is hardly a consolation as the forecast was already beaten down.