India’s IT services sector delivered a mixed performance in the fourth quarter of FY26, with mid-sized firms outperforming larger peers as artificial intelligence-led transformation and global economic uncertainty influenced client spending decisions, according to a UBS report.
The brokerage said the sector, after posting earnings beats in the previous two quarters, saw a weaker quarter overall, with more companies missing expectations than exceeding them.
“Clear divergence between mid-tier and large-cap companies… Q4FY26 prints were mixed, with more misses than beats,” the report said.
According to UBS, major IT firms including Infosys, HCL Technologies, and Wipro delivered weaker-than-expected results and issued conservative growth guidance for FY27.
Infosys projected FY27 revenue growth of 1.5 percent to 3.5 percent year-on-year in constant currency terms, while HCL Technologies guided for 1.5 percent to 4.5 percent growth in its services business, both below broader market expectations.
UBS said company management commentary pointed to ongoing caution, with AI-led pricing pressure and subdued discretionary spending affecting demand visibility.
The report added that consensus earnings estimates have been trimmed modestly, with earnings per share projections for FY27 and FY28 cut by 0 percent to 3 percent across most large-cap players.
In contrast, mid-tier firms showed stronger momentum.
Coforge emerged as a standout performer, prompting UBS to raise its price target for the company by 21 percent. The brokerage cited stronger-than-expected margin performance, with Q4FY26 margins at 16.6 percent and FY27 guidance in the 16.5 percent to 17 percent range.
Persistent Systems and Mphasis were also highlighted for maintaining healthy growth trajectories, supported by strong deal wins.
UBS said the broader macro environment remains challenging, with geopolitical uncertainty and tighter enterprise technology budgets continuing to weigh on discretionary spending.
At the same time, client spending priorities are shifting toward AI, cloud infrastructure, and modernisation programmes, with a stronger focus on productivity improvement and cost efficiency.
Sector-wise, banking, financial services, insurance, and manufacturing were seen as relatively resilient, supported by AI-linked demand, while retail and communications remained under pressure.
Geographically, Europe was identified as a relatively stronger market, while the Americas continued to show resilience due to healthy deal momentum.
UBS said AI-led initiatives have now moved to the centre of growth strategies across the IT services industry.
