Indian IT's First 6 Months of 2026 Were Brutal, But H2 May Be Worse Still

At the end of June, while Wall Street's biggest tech names partied through another record-setting session, the mood at Dalal Street was far more sombre. 

The Nifty IT index closed the first half of the year down close to 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.

At first glance, the answer seems to be AI pricing pressure. Global companies are cutting their tech budgets as AI tools can now handle coding and maintenance work, forcing IT companies to review their pricing model. The market is mirroring a long-term structural threat.

“The IT industry has survived bigger issues like COVID-19 and the dot-com crash. This is also one of those,” Srinivas Padmanabhuni, an AI expert and technologist who previously worked as Principal Research Scientist and Associate Vice President at Infosys Labs, tells AIM.

But the story seems far more contradictory. IT companies are shopping for mega deals, diversifying their revenue streams, and churning profits, even if at a slower growth rate.

“One thing for sure is that non-linear models have to evolve. The linear FTE-driven (full-time equivalent) models are definitely under pressure because AI is all about efficiency,” he adds.

AI Disruption Finally Priced In

For most of 2024 and 2025, brokerages treated "AI will eat services revenue and jobs" as a distant tail risk worth a footnote rather than a valuation call. That changed decisively through 2026. 

Industry analysts tracking enterprise technology spending suggest that the regular 2–3% annual deflation figure spanning both Indian and global IT players could be dwarfed by the cumulative revenue compression from AI-driven productivity gains over the next three to five years.

In an earlier interaction with AIM, Gaurav Vasu, Founder and CEO of UnearthInsight, said, “AI is clearly shrinking the need for a lot of traditional tech and tech services. We have actually been saying for a long time that over the next three to five years, overall deflation could be in the 10–15% range.”

Accenture was just the most recent example. 

On June 19, the global consulting giant—Indian IT's most-watched read-through stock, given how closely its business mirrors TCS and Infosys—trimmed its annual revenue growth forecast by just one percentage point, from a 3–5% range down to 3–4%. But what followed was a bloodbath.

Accenture's stock cratered nearly 18% in a single session, dragging down other Indian IT stocks, including TCS and Infosys. Accenture's order book had fallen nearly 15% year-on-year, a direct signal that large enterprise clients are simply committing less money to the kind of big, people-heavy, multi-year contracts that built the Indian IT industry over two decades.

An even more pointed episode was in May, when OpenAI and Anthropic unveiled their "deployment" venture built around embedding forward-deployed engineers directly inside large organisations to redesign workflows around AI, bypassing the traditional systems-integrator layer entirely. 

“In May, both OpenAI and Anthropic launched their private equity-backed services companies, and they committed huge investments. That was a defining point in the IT services ecosystem and gave clarity to people that IT services were far from being dead,” says Praveen Bhadada, CEO and Managing Director of consulting firm Neovay Global.

“For companies to take advantage of AI, they just don't need the tools. They also need people who can make these tools a utility in the truest sense. That reaffirmation of the relevance of IT services happened from there,” he explains.

Macro Headwinds

Meanwhile, geopolitics added pressure to the topline.

The US-Iran war rattled both the markets as well as the rupee. Between January 1 and April 1, 2026, the rupee depreciated by roughly 3%, falling from around ₹90.01 to ₹92.74 against the US dollar. That translated into modest margin gains as the IT sector stabilised short-term finances. 

However, sustained growth depends less on currency movements and more on a recovery in client spending and execution in new technology areas. US clients are wary about spending since a fragile US-Iran ceasefire, and SaaSpocalypse fears as foundational models drive market narratives, brokerages kept a "risk-off" mood alive for large stretches of the year. 

With around 60% of Indian IT's revenue still coming from the US, every wobble in American corporate confidence about discretionary technology spending shows up in Indian order books within a quarter or two. 

Moreover, the Donald Trump administration's H-1B visa restrictions are not making it any easier for IT companies to serve their US clients. They have also upended the careers of many Indian engineers, leaving them grappling with an uncertain future and limited employment opportunities back home.

“Some individuals are coming to GCCs through their internal transfer. But that is a very small number compared to the number of people who are back and are struggling. Many of them are searching for other opportunities,” says Aditya Narayan Mishra, Managing Director and CEO of talent solutions and recruitment firm CIEL HR.

Deals and Acquisitions 

Every major Indian IT company spent the first half of 2026 racing to reposition itself as an AI-first services and platform business, and the deal numbers underneath that repositioning are genuinely large.

TCS struck a marquee tie-up with French AI lab Mistral in May, becoming the first global systems integrator to build custom enterprise AI models on Mistral's "Forge" platform.

Infosys also leaned hard into the "enterprise AI" pitch through its Topaz platform. It has kept a steady acquisition drumbeat through the year too, with two deals—Optimum Healthcare IT and Australian cybersecurity specialist The Missing Link—awaiting regulatory sign-off, part of a deliberate push into healthcare.

HCLTech is now putting hard numbers on its AI business rather than folding it into broader "digital" revenue, with annualised "Advanced AI" revenue crossing $620 million in Q4 FY26 alone.

Even as AI anxiety dominated boardroom conversations and headlines, the industry is also reshaping itself with aggressive consolidation, buying up smaller, AI-native, or domain-specialist firms. Also, enterprise clients are consolidating their vendor rosters down to fewer, larger partners.

Persistent Systems’ voluntary public takeover offer of German digital engineering firm Nagarro at €81 per share ($1.4 billion deal) on June 27 was the latest example.

In addition, Wipro's deal to acquire Mindsprint, the IT and digital services arm of Singapore's Olam Group, bundled an outright acquisition into a broader transformation contract, giving it instant supply-chain and agribusiness domain IP it would have taken years to build organically.

Among other mid-tier IT firms, Coforge’s acquisition of Silicon Valley-based digital engineering firm Encora for an enterprise value of $2.5 billion strengthened its position in the AI-led engineering, data, and cloud services markets.

The pattern across the sector is consistent: rather than building AI-native, domain-specific or cybersecurity capabilities from scratch, India's IT majors are focusing on consolidation to stay ahead and on par with AI giants.

Hiring Shift

The job story is more nuanced than the mass hysteria of AI-driven layoffs. However, while AI hiring may be on the rise, the broader headcount has taken a hit. 

According to job portal Naukri’s monthly JobSpeak report, AI hiring in the Indian IT sector rose 16% year-over-year in June, while overall IT jobs declined 3%. Last month, TCS said it expected hiring to slow down and that it was moving towards having an equal number of employees and AI agents in the workforce. 

This is only a continuation of recent trends. TCS, the largest employer in Indian IT services, shed nearly 23,500 employees in FY26 to end the year at 584,519, following a formal restructuring programme.

“This isn't a temporary correction; it's a structural re-architecture of the talent pyramid. AI is compressing the middle layer that once absorbed years of execution work, while senior roles remain largely status quo. Fresher hiring itself has slowed, with a sharper focus on AI-native talent over volume,” says Saravanan (Saran) Balasundaram, Founder and CEO of talent solutions firm Han Digital Solution.

“The gap left behind isn't being filled by permanent headcount; it's being absorbed by a growing temporary workforce, cushioning the shock of layoffs and emerging AI skills,” he adds.

Companies are also expecting entry-level engineers to show significantly higher readiness, including familiarity with AI-assisted development, problem-solving skills, and the ability to build production-grade applications much earlier than before, as AIM reported earlier.

Six months into its toughest year in over a decade, Indian IT is no longer debating whether AI will reshape the industry. The real question heading into the Q1 FY27 earnings season is whether the sector can reinvent itself quickly enough to turn efficiency-driven disruption into its next growth engine.