Almost 50% of Indian enterprises have already deployed multiple GenAI use cases, reveals the EY-CII report.

The Indian IT sector posted a clear recovery in Q2FY26, marking a return to positive sequential growth after two quarters of decline. According to a sector update by Axis Capital, the rebound was driven by both Tier-1 and Tier-2 tech companies, with mid-tier players continuing to outperform on growth and margins.

Tier-1 IT firms—including Infosys and Wipro—delivered results broadly in line with expectations, while Tech Mahindra surprised on the upside with slightly stronger sequential performance. In contrast, Tier-2 companies such as Coforge and Persistent Systems led the overall growth momentum, supported by robust deal activity. BPO-focused companies like eClerx and Sagility posted steady performance during the quarter.

In the engineering, research and development (ER&D) segment, Tata Technologies delivered an unexpected positive performance, driven mainly by its non-automotive verticals. However, the broader ER&D space continued to face pressure due to persistent weakness in automotive demand.

Margins across the IT sector improved meaningfully in Q2FY26, supported by currency tailwinds, delayed wage revisions, and the absence of seasonal costs. Offshore-driven BPO firms reported the strongest margin expansion, while most ER&D players—except Tata Tech—fell short of expectations due to slower revenue growth. Notably, HCLTech maintained EBIT margins in the 17–18% band, Infosys held steady at 20–22%, and Sagility upgraded its adjusted EBITDA margin outlook on the back of a strong first half.

Hiring trends also showed signs of early demand stabilization. Tier-1 tech firms, excluding TCS, recorded sequential headcount additions, led by Infosys, which added 8,200 employees—its highest increase since Q2FY23—and Cognizant, which added 6,000 employees. Fresher hiring is expected to pick up further in FY26 as companies focus on optimizing resource costs, similar to strategies adopted by global peers such as Capgemini.

Axis Capital’s report also highlights emerging near-term opportunities linked to GenAI-driven spending, which could provide an additional boost to deal pipelines and support an improvement in the broader IT business cycle in the coming quarters.