Budget 2026 and the IT sector’s big question: Will policy remove roadblocks and unlock the next growth cycle?

Contents

Why Budget 2026 matters more than usual for IT and BPM companies Labour codes are no longer a policy issue, they are a margin issue AI is no longer optional — the industry wants help moving from pilots to scale Skilling and mid-career transitions emerge as the real bottleneck Digital Public Infrastructure and frontier tech: the next platform opportunity Cross-border taxes, ESOP norms and compliance friction weigh on competitiveness Here’s what happened today and why traders reacted What this means for investors and portfolios The bottom line: less about sops, more about structural support

As India heads toward Union Budget 2026, the message from the Information Technology and Business Process Management (IT/BPM) industry is unusually direct: remove friction that hurts margins, and strengthen the levers that help the sector scale. From labour code ambiguity to AI infrastructure, from skilling gaps to cross-border tax clarity, industry leaders are framing their expectations not as wishlist sops, but as structural fixes that could determine how competitive India’s $250+ billion digital services ecosystem remains over the next decade.

Why Budget 2026 matters more than usual for IT and BPM companies

Unlike previous years, when the focus was on incentives, this time the industry’s demands are rooted in execution realities. Margins are under pressure, global clients are cautious on discretionary spending, and AI-led transformation is reshaping delivery models.

Executives argue that Budget 2026 can materially influence:

Profitability outlook for large IT services firms
Hiring momentum and wage planning
Speed of AI adoption across delivery
India’s competitiveness in cross-border digital services

The underlying tone is pragmatic. As one industry leader summed it up: “Fix what slows companies down, and back what helps them scale.”

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Labour codes are no longer a policy issue, they are a margin issue

One of the most immediate asks is clarity on labour codes. During the Q3 FY26 earnings season, major IT firms disclosed that ambiguity around wage definitions led to provisions of nearly ₹5,000 crore across the top companies, as revised rules inflated gratuity and provident fund liabilities.

Mohit Joshi, CEO and MD of Tech Mahindra, made the concern explicit:

“For all the IT services companies, clearly, there was a significant provision that happened because of the labour code implications. I think it hits profitability. We’re looking for a little bit more clarity on the labour code requirements.”

For investors, this matters because even a 15–20 basis point margin impact, when applied to companies with revenues of tens of thousands of crores, can materially affect earnings estimates and stock valuations.

AI is no longer optional — the industry wants help moving from pilots to scale

Beyond compliance clarity, the industry’s most consistent demand is for stronger policy support around AI adoption. Leaders argue that India risks losing momentum if AI remains stuck in pilot projects instead of moving into scaled enterprise deployment.

Venkatraman Narayanan, MD of Happiest Minds Technologies, framed the opportunity clearly:

“Policy measures that encourage adoption of AI, automation, and Generative AI across IT and BPM operations can significantly enhance productivity, efficiency, and service quality.”

The expectation from Budget 2026 is not just tax breaks, but ecosystem building:

Incentives for enterprise AI adoption
Support for AI infrastructure and compute access
Encouragement for private capital in AI R&D
Faster rollout of policies linked to the IndiaAI Mission

For markets, this matters because firms positioned strongly in AI-led services could command valuation premiums, while laggards risk derating.

Skilling and mid-career transitions emerge as the real bottleneck

While AI creates opportunity, talent readiness is fast becoming the binding constraint. Leaders are now talking less about fresh hiring volumes and more about job readiness and mid-career transitions.

Kapil Joshi, CEO of Quess Corp, warned that as Global Capability Centres (GCCs) shift toward higher-value mandates, talent availability becomes strategic:

“Talent availability is emerging as the most critical lever as GCCs move toward value-driven mandates.”

Industry voices are asking Budget 2026 to prioritise:

Structured mid-career reskilling frameworks
Incentives for companies investing in reskilling
Stronger apprenticeship and internship ecosystems
Industry-linked skilling programs in Tier 2 and Tier 3 cities

Achal Khanna, CEO of SHRM APAC & MENA, highlighted the cost impact on companies: delays in job readiness directly increase training expenditure and time-to-productivity.

Digital Public Infrastructure and frontier tech: the next platform opportunity

The wishlist is expanding beyond enterprise services into platform-level ambition. Nitin Chandalia of BCG pointed to the success of Digital Public Infrastructure (DPI) such as Aadhaar and UPI and suggested that the next leap could come from extending DPI into healthcare, logistics and manufacturing.

“The government could build on the success of Digital Public Infrastructure by expanding its application beyond payments and identity… unlocking productivity and efficiency gains.”

Such moves could create multi-year demand for IT services, cloud integration, cybersecurity, and data platforms — themes that equity analysts are already tracking for medium-term growth.

Cross-border taxes, ESOP norms and compliance friction weigh on competitiveness

Several leaders also flagged export competitiveness issues. Services contribute nearly 50% of India’s exports, according to Rajesh Chhabra of Acronis, yet companies continue to face friction around:

Cross-border tax clarity
Delayed GST refunds
Ambiguity on ESOP taxation
Overlapping compliance requirements for BPM exporters

These may sound like technical issues, but for investors, they directly influence cost structures, cash flows and the ease with which Indian firms can attract global talent.

Here’s what happened today and why traders reacted

Markets have begun to selectively price in Budget-linked expectations. In recent sessions, investors have shown preference for:

Large-cap IT services firms with strong AI narratives
Digital engineering and cloud-focused midcaps
Staffing and skilling-linked businesses
Companies linked to data centres and digital infrastructure

Traders are positioning cautiously, waiting for concrete signals from Budget documents rather than relying on broad sentiment. Any mention of labour code clarity, AI incentives, or skilling outlays in the Finance Minister’s speech could trigger immediate stock-specific reactions.

What this means for investors and portfolios

For long-term investors, Budget 2026 could help differentiate winners from laggards within the IT space.

Potential positives:

Companies with strong AI platforms and domain expertise may see earnings upgrades
Firms benefiting from skilling and productivity initiatives could improve margins
Export-oriented digital services players may gain competitiveness globally

Key risks to watch:

Continued ambiguity on labour codes
Lack of concrete AI infrastructure support
Policy intent without execution clarity

As one analyst put it, “The sector doesn’t need handouts. It needs predictability.”

The bottom line: less about sops, more about structural support

Across voices from Tech Mahindra to Deloitte, from BCG to staffing firms, the message is consistent. The industry is not asking for cosmetic relief. It is asking for structural enablers.

If Budget 2026 delivers on: