The seasonal strength of the Indian IT sector, usually seen in the first half of a financial year (H1), will be absent this time when companies announce their results. Caution around discretionary IT spending and scrutiny on project-level return on investment persists.
Plus, evolving artificial intelligence (AI)-led scenario is influencing clients’ budgets and elongating decision-making cycles, thus delaying revenue conversion and execution. So, the June quarter (Q1FY27) results that begin with Tata Consultancy Services (TCS) on 9 July may not excite investors. Jefferies India estimates that the aggregate sequential constant-currency (CC) revenue growth of IT companies under its coverage will be flat in Q1FY27.
The impact of the West Asia war could be felt across the consumer, automotive, hi-tech and manufacturing verticals. Vendor consolidation/cost optimization projects are driving deal wins, but competitive intensity is high.
New AI-focused services are feared to eat into revenue of existing services offerings. Launch of new models and plug-ins by OpenAI and Anthropic have fuelled structural growth concerns for the sector and challenged the sustainability of traditional IT business models.
The disconnect between growth in total contract value of deals and revenue for IT services companies implies higher AI-led deflation in existing book of business, cautions ICICI Securities.
Besides, after global IT giant Accenture Plc.’s disappointing March-May quarter (Q3FY26) results, and management outlook, suggests a lukewarm Q2FY27 for Indian IT services firms as well. Accenture’s Q3FY26 had 50 basis points (bps) of growth impact from the West Asia conflict and Q4FY26 (which coincides with Q2FY27 of Indian IT companies) will likely have another 200 bps of impact. Accenture’s result is considered an indicator of the future performance of tier-1 Indian IT companies.
A muted start to FY27 would mean a higher run-rate to meet targeted revenue growth. As per JP Morgan, following Accenture’s FY26 guidance cut, Indian IT firms could trim FY27 guidance post-Q1, rather than wait for Q2. The research firm expects Infosys to reduce its FY27 CC revenue guidance (ex-Optimum) from 1.5-3.5% to 1-2.5% (2.5-4% overall), HCL Technologies to cut its IT services guidance from 1.5-4.5% to 1-3.5%, and Wipro to guide for -2 to 0% sequential revenue for Q2FY27.
Tier-2 IT companies would continue to outpace tier-1 on revenue growth, but they are not immune to sequential margin compression. Q1FY27 Ebit margin performance would be a mixed bag. Apart from the rupee’s depreciation, margin movement would depend on company-specific factors: wage-hike cycles (TCS, Wipro, LTM), large-deal ramp-up, business-related seasonality, and impact from acquisitions. IT firms are largely expected to maintain FY27 margin guidance.
To fill portfolio gaps, expand geographic presence, vertical mix, and enhance AI-led engineering capabilities, Indian IT companies have been on an acquisition spree. The organic route would also help boost growth faster in these challenging times. Key strategic deals in Q1FY27 include Persistent Systems-Nagarro, LTM-Randstad’s Technology and Consulting Services, Wipro-Mindsprint and Cyient-TAO Digital. The thrust on inorganic growth is likely to remain in FY27, but any reduction in dividend to payouts to fund these deals will be sentiment dampener.
Growth woes have dragged the Nifty IT index down 28% so far in 2026, keeping companies exposed to further downgrades. The index is trading at a one-year forward price-to-earnings of 15 times, according to Bloomberg data. This is a discount to the five-year average of 26 times. In the medium-term, JP Morgan expects large IT firms’ revenue growth to hover in 3-4% range, much below their long-term average of 7-8%.