The third quarter of the fiscal year 2026, spanning October to December 2025, presented a complex and often challenging landscape for India’s formidable information technology services sector. Amidst persistent global macroeconomic uncertainties, a surprising trend emerged as two of the traditionally mid-tier players, Wipro and Tech Mahindra, demonstrated stronger sequential and annual revenue growth, alongside significant profitability improvements, compared to their larger and often more dominant counterparts, Tata Consultancy Services (TCS) and Infosys. This divergence in performance, particularly during a period typically marked by seasonal softness due to holiday seasons and reduced client spending, underscores a potential realignment within the industry and highlights the nuanced strategies employed by firms to navigate a volatile global demand environment.
Wipro, the Bengaluru-headquartered IT giant, reported revenues of $2.64 billion for the October-December 2025 quarter, marking a sequential increase of 1.19% and a modest year-over-year growth of 0.24%. This performance notably surpassed market expectations, which had pegged Wipro’s revenue closer to $2.6 billion. A significant driver for this growth was the banking sector, which contributed over three-fifths of the company’s incremental revenue during the quarter, despite constituting just over a third of its overall business. This robust demand from financial services clients suggests a continued push for digital transformation, regulatory compliance, and enhanced customer experience platforms within the global banking ecosystem, a segment where Wipro appears to have capitalized effectively.
Concurrently, Tech Mahindra, with its strong focus on telecommunications and manufacturing, posted a third-quarter revenue of $1.61 billion. This represented a sequential rise of 1.5% and an impressive 2.74% increase from the previous year, marking its best third-quarter performance in three years and exceeding the Bloomberg consensus estimate of $1.57 billion. The company’s telecom vertical, which accounts for approximately a third of its revenue, was a primary growth engine, contributing more than half of the quarter’s expansion. This performance was further bolstered by a landmark deal, valued upwards of $500 million, secured from an undisclosed European communications provider, signifying a strategic win in a region that comprises a quarter of Tech Mahindra’s business. Such large deal wins are critical in a tight market, demonstrating client confidence in specialized capabilities, particularly around 5G infrastructure, network modernization, and digital service orchestration.
In stark contrast, the industry stalwarts, TCS and Infosys, experienced more subdued growth. TCS, India’s largest IT services firm, reported revenues of $7.51 billion, reflecting a sequential increase of 0.6%. Infosys, the second-largest, registered $5.1 billion, a sequential rise of 0.5%. HCLTech, while not matching the sequential growth of Wipro or Tech Mahindra, still outperformed its larger peers with a 4.1% sequential revenue increase, reaching $3.79 billion, making it the best performer among the top five in terms of sequential expansion. This disparity in growth rates among the "big five" highlights the varied impact of client spending patterns, sector-specific demands, and individual company strategies in navigating the current economic climate.
The demand outlook commentary from the leadership of these firms also presented a mixed picture. While Wipro’s CEO, Srinivas Pallia, noted a "very strong pipeline across sectors and markets," he also emphasized the need to closely monitor "discretionary spend." Tech Mahindra’s CEO, Mohit Joshi, echoed a similar sentiment, describing the demand environment as "certainly strengthened a bit" but refraining from calling it a dramatic turnaround, rather a reflection of a "slightly more stable" environment. In contrast, TCS’s CEO, K. Krithivasan, tempered earlier expectations, noting that the aspiration for faster international business growth in the current fiscal year (FY26) now remains merely an "aspiration." Infosys, however, maintained a comparatively more optimistic stance, with CEO Salil Parekh observing no "deterioration" and citing expectations of potential interest rate cuts, particularly in the US, as a positive macro indicator. Infosys subsequently raised its full-year revenue guidance to 3-3.5% in constant currency terms, up from an earlier projection of 2-3%, signaling a cautious but improved outlook. HCLTech, despite narrowing its FY26 guidance to 4-4.5% from 3-5%, still maintained a robust forecast, with CEO C. Vijayakumar underscoring that while global market uncertainty persists, the fundamental demand for technology as a driver for business transformation remains "structurally intact."
Profitability metrics further illuminated the diverging fortunes. Wipro and Tech Mahindra showcased commendable improvements in their operating margins, reporting 17.6% (up 90 basis points) and 13.1% (up 100 basis points), respectively. This expansion suggests successful cost optimization efforts, improved project execution, and potentially a more favorable project mix. In contrast, TCS’s operating margins remained flat at 25.2%, while Infosys experienced a significant decline of 260 basis points to 18.4%. HCLTech, however, mirrored the positive trend of the mid-tier firms, achieving a margin expansion of 110 basis points to 18.6%. A common headwind for all five major Indian IT outsourcers was the impact of new labour codes. These regulations, which mandate increased basic pay and consequently higher statutory payouts like provident fund and gratuity, inflicted significant upfront costs. TCS incurred $238 million, Infosys $143 million, HCLTech $109 million, Wipro $33.3 million, and Tech Mahindra $30 million, resulting in an impact of up to 320 basis points on their overall profitability. This regulatory burden underscores a broader challenge for the Indian IT sector, necessitating strategic adjustments to compensation structures and pricing models to maintain competitiveness and profitability.
The strategic imperative of Artificial Intelligence (AI) also featured prominently in the earnings discussions. While all companies acknowledged AI as a critical growth pillar, only TCS and HCLTech quantified its current revenue contribution. TCS reported an annualized revenue of $1.8 billion from AI as of the December quarter, demonstrating significant early traction. HCLTech, meanwhile, generated $146 million from advanced AI in the last quarter alone. Tech Mahindra’s CEO, Mohit Joshi, articulated the industry’s shift from "experimentation to execution at scale" in AI, highlighting its increasing embedment across enterprise engagements to drive business experience, process transformations, and IT operations. This focus indicates a transition from pilot projects to tangible, revenue-generating AI solutions, signaling a new phase of digital adoption where AI is not just a buzzword but a fundamental component of business strategy and service offerings.
The talent landscape also revealed mixed trends in headcount across the top IT firms. During the quarter, TCS, HCLTech, and Tech Mahindra implemented headcount reductions of 11,151, 261, and 3,098 employees, respectively. This could reflect a combination of factors including a focus on increasing utilization rates, automation-driven efficiency, and a more cautious hiring approach in response to uncertain demand. Conversely, Infosys and Wipro expanded their workforces, adding 5,043 and 6,529 employees, respectively. This selective hiring could be aimed at bolstering specific skill sets, particularly in areas like AI, cloud, and cybersecurity, or preparing for anticipated project ramp-ups. The differing approaches to talent management highlight the varied internal strategies each company is employing to balance demand, efficiency, and future growth imperatives in a dynamic global talent market.
Looking ahead, the full-year projections remain pivotal for these firms. For Tech Mahindra, a better-than-expected performance over the first nine months of the fiscal year positions it to reverse its recent trend of revenue decline and achieve positive growth for the full fiscal year. Wipro faces a more challenging path; to avoid a full-year revenue decline, it would require a sequential dollar revenue growth of 1.86% in the January-March quarter (Q4 FY26), which would mark its best fourth-quarter performance in four years. The company’s own management projected Q4 revenue to be between $2.64 billion and $2.69 billion. However, this outlook, perceived as weaker than anticipated, triggered a 6% fall in Wipro’s shares on the New York Stock Exchange in pre-market trading, underscoring investor sensitivity to forward-looking guidance. The divergent Q3 performances and future outlooks suggest that while the Indian IT sector continues to navigate a complex global environment, specific strategies, market segment focus, and operational efficiencies are increasingly becoming key differentiators, potentially reshaping the competitive dynamics of the industry in the fiscal year ahead.
