As India’s information technology sector heads into 2026, global brokerage Jefferies has issued a cautious outlook, highlighting multiple risks that could weigh heavily on the performance of IT stocks in the coming year. Despite enthusiasm surrounding AI adoption and hopes of a demand revival, Jefferies says the “growth outlook remains uncertain” for the sector.
The warning comes at a time when the industry is grappling with weakening global demand, cost pressures, layoffs, and shifting spending patterns among major clients. Accenture’s recent guidance, which indicated slower technology spending, has further intensified concerns.
Jefferies has flagged four major risk factors that investors need to watch closely:
1. Earnings Downgrades Continue to Pressure Large IT Companies
One of the biggest red flags is the steady downgrade in earnings estimates for FY26. Analysts have reduced earnings forecasts for large-cap Indian IT companies by 3–12%, reflecting slower deal closures and weak discretionary spending.
The first half of FY26 has been disappointing for India Inc., and expectations of a meaningful recovery remain uncertain. Large-cap IT firms, which typically depend on global clients for multi-year deals, have been hit the hardest as spending remains subdued.
2. Midcap IT Firms Show a Different Trend
While large companies struggle, midcap IT firms have witnessed a contrasting trend. Most mid-sized IT providers saw upward revisions in their earnings outlook, supported by stronger niche capabilities and agile business models.
As a result, midcap IT stocks outperformed the Nifty IT index by 11–20%, reflecting investor confidence in their resilience and faster adaptability to market shifts. However, Jefferies cautions that this divergence may not last if broader demand remains weak.
3. Muted Demand Environment Could Extend Into 2026
Accenture’s softer guidance has reinforced fears that global tech spending—especially in BFSI and retail sectors—may stay muted well into 2026. Slow decision-making cycles, tighter IT budgets, and delayed ramp-ups remain major concerns.
Jefferies notes that without a clear recovery in the U.S. and European markets, Indian IT companies may continue to face revenue headwinds.
4. Valuation Risks Amid Macro and AI Uncertainty
Despite muted earnings visibility, many Indian IT stocks are trading at premium valuations. Jefferies warns that this disconnect poses a significant risk if growth does not rebound soon.
Additionally, while AI investments are rising, monetization remains slow. The brokerage says companies may face margin pressures as they continue to spend heavily on AI without immediate returns.
Outlook: Cautious but Watchful
Jefferies concludes that while long-term fundamentals for Indian IT remain intact, the near-term environment is challenging. With global macro uncertainties, evolving AI dynamics, and uneven growth across the sector, investors may need to brace for volatility in 2026.