IT Outlook 2026: Brokerages Warn Of Slow Recovery And Selective Opportunities

India’s IT services sector enters 2026 with cautious optimism as global brokerages paint a picture of gradual improvement rather than a sharp revival. Despite the noise around artificial intelligence, the sector’s fortunes remain firmly tied to macroeconomic conditions, with growth expected to recover only modestly.

Across brokerages, three broad trends stand out — macro dependency, selective stock opportunities and a slow but improving earnings profile.

Jefferies, Nomura and CLSA agree that macro improvement is the single most important trigger for a meaningful upturn in demand.

Nomura expects only a marginal pickup in revenue growth through 2026, stressing that a broader revival in discretionary tech spending will depend on global economic stability. CLSA echoes this, noting that despite the flux in AI narratives, EPS growth is still linked to macro cycles.

CLSA points to the US mid-term elections, tariff adjustments and the Fed’s interest-rate path as key variables. Jefferies adds that management guidance across IT firms continues to reflect caution, with recovery likely to be gradual, a stance that risks consensus expectations for fiscal 2027.

Structural headwinds, such as muted spending in financial services, slower cloud migrations and uncertainty around US enterprise budgets, also remain in place.

While generative AI continues to dominate the narrative, brokerages remain guarded about its near-term financial impact.

Nomura expects AI-driven opportunities to open meaningfully in the next 12–18 months, but stresses that adoption cycles will be staggered. CLSA adds that AI-led deflation could compress pricing in some areas, even as it helps long-term productivity.

Jefferies notes that macro and AI-related uncertainties have contributed to the recent PE derating across the sector.

In short, the technology tailwinds exist, but the monetisation timeline remains extended.

Nomura expects modest margin expansion in 2026, supported by improving deal pipelines and easing supply-side pressures. However, brokerages do not foresee a sharp rebound.

Jefferies highlights that stock performance continues to track EPS revisions, with mid-tier IT companies outperforming their larger peers. Still, overall growth visibility remains cloudy, and firms may struggle to justify higher valuations until order books strengthen.

A key theme across reports is valuation discipline.

Jefferies points out that the sector has undergone a valuation reset, with PE multiples correcting from premium levels seen in early 2025. CLSA believes valuations have become attractive again, especially against the backdrop of AI-led disruption and global volatility.

This reset creates opportunities, but selectively. Brokerages prefer companies with stronger execution, diversified client portfolios and higher exposure to cost-efficient mid-tier markets.

While all three brokerages picked Coforge, Nomura and CLSA also recommended Infosys. Nomura also preferred eCLerx.

Among large-caps CLSA picked Tech Mahindra, while the brokerage preferred Persistent Systems in mid-cap. Jefferies on the other hand, preferred Sagility.