Indian IT Braces for Soft Start to FY27 as AI Margins Remain a Mirage
By Ajay Rag ·
India's IT sector seems to be at the mercy of an ominous prophecy. As was the case in the last quarter of FY26, brokerages and analysts expect a subdued start to FY27, with macro uncertainty, cautious enterprise spending, and AI-led disruption continuing to weigh on growth.
Brokerage firm Motilal Oswal Financial Services expects demand across the sector to stay soft in the first quarter, with macro uncertainty, AI-driven disruption, and geopolitical overhangs continuing to weigh on discretionary spending and client decision-making.
“Against this backdrop, we build in tepid QoQ growth across our coverage universe for 1QFY27, with the soft start likely extending into 2QFY27 as well,” it said.
The mood was sombre even before Indian IT rolled out of Q1.
Accenture, often considered the bellwether for India's IT services sector, received a muted response from investors after the Irish tech giant trimmed its full-year revenue growth guidance to 3–4% in local currency from the 3–5% range it had projected in March. New bookings, seen as an indicator of future revenue as they reflect work expected to be billed over the next 12–18 months, fell 2% in dollar terms and 3% in local currency to $19.3 billion, weighing on Indian IT stocks.
Meanwhile, the broader IT sector continues to navigate multiple headwinds, including the volatile situation in the Middle East, frontier AI models and forward-deployed engineers threatening to cannibalise its revenue, and the collapse of the traditional per-hour billing model.
“We expect Indian IT to begin FY27 with another quarter of modest growth, with tier-1 companies likely to report around 0.5–1.5% constant currency growth. The underlying demand environment remains cautious, as enterprises continue to prioritise efficiency-led technology investments over large discretionary transformation programmes,” Gaurav Vasu, Founder and CEO of business intelligence firm UnearthInsight, tells AIM.
Tata Consultancy Services (TCS), the country's largest IT services company, will announce its Q1 FY27 results on July 9, kicking off the IT earnings season.
According to Motilal Oswal, TCS is expected to report flat sequential revenue growth in constant currency, as steady execution in banking and consumer verticals is likely to be offset by continued softness in communications and cautious discretionary spending across manufacturing and North America.
Infosys is expected to lead large-cap growth at around 2% quarter-on-quarter in constant currency, aided by a two-month contribution from its recent Optimum and Stratus acquisitions for a total of $560 million, while Tech Mahindra is expected to grow around 1% on the back of large telecom deal ramp-ups.
However, the brokerage firm noted that HCLTech and Wipro are expected to decline, hurt by client-specific issues, delayed ramp-ups, and seasonal weakness.
Tier-2 firms, once again, are expected to outperform their larger peers, with Hexaware Technologies leading the pack with an expected 4.8% sequential growth on a constant currency basis, followed by Persistent Systems and Mphasis, among others.
Vasu notes that while artificial intelligence is now embedded across most engagements, it is still driving productivity rather than creating a separate high-margin revenue stream for these companies. Hence, margins are likely to remain range-bound, with wage hikes and continued AI investments offsetting the benefits of rupee depreciation.
Equirus Securities also expects the top six Indian IT services companies to report a modest constant-currency US-dollar revenue performance, ranging from -1.7% to +1.1% quarter-on-quarter.
“Enterprise technology spending is expected to remain measured during the June quarter as global macroeconomic uncertainty, geopolitical developments and a continued focus on AI-led productivity gains keep discretionary IT investments under pressure,” per Equirus.
UnearthInsight forecasts Indian IT’s full-year FY27 growth to remain subdued at 3–4%
As AIM analysed earlier, the Nifty IT index closed the first half of the year down nearly 29%, making it the worst-performing sectoral index on the exchange and one of the roughest first halves for the Indian IT sector since the dot-com crash of 2001.
With large-cap growth expected to be flat to negative and a guidance-trimming cycle likely underway, the sector heads into results season with low expectations, leaving room for either an expected prolonged slowdown or a modestly positive surprise if deal pipelines prove more resilient than feared.