It - Software Sector Analysis: Q2 Fy26 Insights And Outlook

Summary: The IT - Software sector, as evidenced by the Q2 FY26 performance and outlook of major players like TCS, Infosys, HCLTech, Wipro, LTIMindtree, Tech Mahindra, Persistent Systems, Coforge, Tata Elxsi, IKS Health, Tata Technologies, Affle 3i, Firstsource Solutions, Sagility, eClerx Services, Zensar Technologies, Intellect Design Arena, Newgen Software Technologies, Cyient, and LatentView Analytics, is navigating a complex landscape characterized by persistent macroeconomic uncertainties and evolving client priorities. While discretionary spending remains tight, a significant shift towards AI-led transformation, cost optimization, and vendor consolidation is driving deal momentum. Companies are aggressively investing in Generative AI (GenAI) capabilities, upskilling talent, and forging strategic partnerships to capitalize on this new wave of demand. Margins are under pressure from wage hikes and AI investments but are being managed through operational efficiencies, pyramid rebalancing, and strategic portfolio adjustments. The outlook for H2 FY26 suggests a mixed picture with seasonal headwinds (furloughs) but an anticipated pickup in demand, particularly for AI-infused solutions and large-scale modernization projects, leading to cautious optimism for FY27.

A. Industry Overview & Market Landscape

The IT - Software sector is undergoing a profound transformation, primarily driven by the rapid advancements and adoption of Artificial Intelligence (AI), particularly Generative AI (GenAI). The market is characterized by a dual demand environment: clients are seeking both cost optimization and efficiency gains through automation and AI, alongside strategic transformation and modernization initiatives. This dynamic is leading to a significant re-evaluation of IT spending, with a clear shift towards value-driven engagements and outcome-based models.

Total Addressable Market Size and Growth Rates: While specific aggregate market size figures for the entire sector are not explicitly provided across all documents, individual company revenues offer a glimpse into the scale. For instance, IKS Health highlights a US Healthcare Expenditure TAM of US$5 trillion in CY2024, with an outsourced market of US$34 billion (CY2023), projected to grow at an 8% CAGR (TAM) and 12% CAGR (outsourced market) from 2023-2028E. This indicates significant untapped potential in specialized segments. The overall IT services industry growth is expected to be higher next year if macro conditions improve (Infosys, HCLTech).

Market Structure and Segmentation: The market is highly segmented by service offerings, industry verticals, and geographic regions.

• Service Offerings:

  • Traditional IT Services: Application Development & Maintenance (ADM), Infrastructure Management Services (IMS), Business Process Management (BPM). These are increasingly being infused with AI for productivity gains.
  • Digital Transformation Services: Cloud migration, data analytics, cybersecurity, IoT, digital engineering.
  • AI-led Services: GenAI consulting and implementation, AI engineering, agentic AI solutions, AI platforms, AI advisory, AI security. This is the fastest-growing segment, with companies like HCLTech reporting over $100 million in Advanced AI revenue in Q2 FY26 (3% of total revenue).
  • Product Engineering (ER&D): Automotive, Aerospace, Industrial, Medical Devices. Companies like Tata Elxsi, LTTS, Tata Technologies, and Cyient specialize here, focusing on software-defined vehicles (SDV), electrification, ADAS, digital manufacturing, and semiconductor design.
  • Specialized Platforms/Products: NewgenONE (Low Code digital transformation), Intellect Design Arena's eMACH.ai (FinTech), Affle 3i's Consumer Platform Stack (digital advertising), IKS Health's care enablement platform (US Healthcare).

• Industry Verticals:

  • BFSI (Banking, Financial Services & Insurance): A major vertical for most players (TCS, Infosys, LTIMindtree, Tech Mahindra, Persistent, Coforge, Happiest Minds, eClerx, Zensar, Intellect Design Arena, Firstsource). Demand is driven by legacy modernization, cost optimization, regulatory compliance, and AI-led automation.
  • Manufacturing: (TCS, Infosys, HCLTech, LTIMindtree, Tech Mahindra, Coforge, Tata Technologies, LTTS). Mixed performance, with some segments (Aero, Industrial) showing traction, while Automotive faces headwinds but also opportunities in EVs and SDVs.
  • Healthcare & Life Sciences: (TCS, Infosys, HCLTech, LTIMindtree, Persistent, Wipro, IKS Health, Tata Elxsi, Firstsource, Sagility, Zensar). Strong demand for digital transformation, RCM, clinical documentation, and AI-driven solutions to manage rising costs and regulatory complexity.
  • Technology & Communications (TMT): (TCS, Infosys, HCLTech, LTIMindtree, Tech Mahindra, Wipro, Coforge, Tata