Investors Sour on Indian IT as AI Demands Structural Reset, Not Just New Deals

Indian IT’s wipeout on the stock markets doesn’t really come as a surprise. The IT giants have reported subdued growth in Q4, troubling forecasts for the year ahead, and medium- to long-term uncertainty shaped by the transition to AI and what the deals pipeline may look like in FY27.

The trigger was HCLTech’s weak revenue guidance of 1–4% in constant currency for FY27, well below market expectations. An underperforming software segment, with HCLSoftware revenue declining 14.1% YoY in constant currency in Q4, and a broader pullback in discretionary spending didn’t help either.

“FY26 began against a backdrop of uncertainty… discretionary spending softened in the traditional segments… and client behaviour reflected a continuous focus on cost optimisation, along with accelerated adoption of AI-driven productivity,” HCLTech CEO C Vijayakumar said during a press conference post results.

The IT services company’s stock crashed nearly 11% on the NSE on April 22. This had a ripple effect on the wider IT ecosystem. 

The shares of Infosys, Tata Consultancy Services, and Tech Mahindra declined between 2.5% and 3.5% at the end of the trading day. The Nifty IT index slumped 3.89%, while the Sensex dropped over 750 points.

The decline comes at a time when the industry is already grappling with slowing demand. 

However, investor concerns are now deepening as artificial intelligence begins to reshape the fundamentals of the IT services business.

Structural Shift

Enterprises are reassessing spending priorities as generative AI tools begin automating parts of coding, testing, and maintenance work—areas that have traditionally driven outsourcing demand for Indian IT firms. The result is a dual impact where near-term spending remains weak, while budgets are gradually being redirected towards AI-led transformation, with revenue visibility still evolving.

Gaurav Vasu, CEO and Founder of market intelligence firm UnearthInsight, believes the sharp market reaction to the performance of tier-1 IT companies reflects a structural shift in ownership.

“Indian IT stocks are now dominated by domestic investors rather than FIIs, and domestic flows tend to react more quickly and uniformly to negative surprises,” he tells AIM, adding that while deal pipelines are healthy, revenue conversion is stretched because ramp-ups are taking longer than usual. Until the macro picture in the US turns decisively, a sharper recovery looks unlikely.

To navigate the uncertainties, IT firms are beginning to rework their business models and client engagement strategies.

“Companies like HCLTech, Infosys, TCS, Wipro, and others are reimagining how they look at customer workflows and are rewiring their businesses to adopt more agentic AI and move towards non-linear models,” notes Viswanathan KS, who formerly served as a vice president at Nasscom.

He adds that while some firms, such as pure-play AI company Fractal Analytics and mid-tier IT company Persistent Systems, have performed relatively well by adopting a product-led approach, larger IT services companies are still in transition and the near- to medium-term outlook may remain subdued. However, the long-term projections remain bullish.

Growth Outlook Signals a Reset

The broader IT sector has been navigating multiple headwinds over the past year, including concerns around US tariff policies, rising H-1B visa costs, and ongoing geopolitical tensions.

At the same time, the rapid adoption of AI is raising deeper questions about the sustainability of labour-intensive services, which have historically underpinned India’s IT outsourcing model. The pyramid workforce structure, where entry-level roles formed the basis of billable hours, is also cracking as AI proves more than capable of performing Level 0 tasks. Mid-senior level roles are also under threat.

Recent earnings from HCLTech and its peers are a mere reflection of this uncertainty. 

Tata Consultancy Services reported a contraction in US dollar revenue for the first time since it went public in 2004, with the topline declining 0.5% year-on-year for FY26. 

Meanwhile, Wipro missed earnings expectations, citing geopolitical uncertainties, policy disruptions, and client-specific challenges. It posted revenue of Rs 24,236 crore ($2.62 billion), up 2.9% quarter-on-quarter and 7.7% year-on-year. However, its net profit declined 1.9% from a year earlier.

Together, these trends suggest that the current weakness in IT stocks is not cyclical; they are structural. The IT firms are now under pressure to diversify their revenue streams—such as Cognizant monetising AI training—before AI cannibalises their toplines.