IT Sector Q3FY26: Muted Growth, AI Deflation & Margin Woes Ahead

• Q3FY26 IT earnings expect muted growth due to seasonal furloughs, fewer working days, and cautious client spending.
• Margins face pressure from furloughs, wage hikes, and deal ramp-ups, despite some AI/rupee depreciation cushion.
• Generative AI is embedding deeper but offers limited direct revenue, acting as a productivity lever and deflationary force.
• Visa risks have receded, while ER&D shows stabilization but no sharp recovery, impacted by tariff uncertainty.
• Focus shifts to CY26 client budgets for demand visibility, as Q3 is a 'holding quarter' with gradual recovery.

Why It Matters: IT sector faces a 'holding quarter' in Q3FY26 with muted growth, AI deflation, and focus on CY26 budgets.