IT sector outlook: Demand uncertainty to prolong weakness in FY26

With demand uncertainties in the IT services industry from H2CY24 having trickled into CY2025 budgets, Kotak Institutional Equities (KIE) said, the weakness will continue in FY2026. The demand pipeline has built up well at most ERD service providers with exposure to the automotive vertical. However, it added, deferral of decision-making by German OEMs has impacted conversion. Demand outlook at other manufacturing-focused industries is also yet to improve. “We bake in a moderate demand outlook, leading to cuts to earnings estimates across companies. We retain our cautious view owing to slowing macro and weak demand outlook despite a ~14-40 per cent decline in stock prices over the past three months,” KIE report said.