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India IT Firms Face Muted Q2 Growth as AI Pressures Services
India’s big technology service companies may grow only a little in the July-to-September quarter.
Many customers are being careful about spending and take longer to approve projects.
Companies have won work, but it can take time before that work earns revenue.
Their profits are being squeezed by higher wages, spending on AI and customers asking for lower prices.
AI can also do some work that people used to do, especially in service desks and managed services.
Some analysts think smaller technology firms will still grow faster than the biggest ones.
Analysts disagree about which regions are strongest: one sees the US as weak, while another sees it as strong.
Overall, they expect a slow market rather than a full recovery.
Analysts expect India’s largest IT companies to post muted July-September FY27 revenue growth and broadly steady margins.
UnearthInsight forecasts 0.5-1% quarter-on-quarter growth for the top five firms, while retaining a 3-4% full-year estimate.
Strong bookings are taking longer to convert into revenue as cautious spending and lengthy client decision cycles persist.
Wage increases, AI investment and client pricing demands are weighing on margins, partly offset by automation and utilisation gains.
Analysts differ on regional demand: UnearthInsight calls the US weakest, while Gartner sees it as strongest; AI is also reducing demand for some labour-based services.
- Who
- India’s leading IT services companies, including TCS, HCLTech and Infosys.
- What
- They are expected to report modest revenue growth and broadly steady margins for Q2 FY27.
- Where
- India’s IT services industry, serving clients across regions including the US, Europe and Asia Pacific.
- When
- The July-September quarter of FY27; the earnings season begins October 8.
- Why
- Clients are cautious about discretionary spending, while extended approval cycles, wage increases, AI investment and pricing pressure weigh on growth and margins.
UnearthInsight
Gartner
US market conditions
UnearthInsight
UnearthInsight describes the US as the weakest market.
Gartner
Gartner sees the US as the strongest market, supported by investment in AI, cloud and digital transformation.
Quarterly momentum
UnearthInsight
UnearthInsight expects Q2 to be no better than Q1, citing no revival in budgets or spending.
Gartner
Gartner expects Q2 to be somewhat stronger than the previous quarter as previously awarded contracts enter revenue-generating phases.
Margins
UnearthInsight
UnearthInsight expects slight margin improvement for select tier-one firms, while mid-tier firms sustain current margins.
Gartner
Gartner expects margins to remain broadly stable, with limited room for expansion.
Key facts
- Top-five Q2 growth forecast
- UnearthInsight expects 0.5-1% quarter-on-quarter growth.
- FY27 growth estimate
- UnearthInsight maintained its 3-4% estimate for the top firms.
- Bookings-to-revenue timeline
- UnearthInsight expects long decision cycles to continue for 12-18 months.
- M&A activity
- The industry spent $3.6 billion across 14 deals so far in FY27, according to UnearthInsight.
- AI revenue disclosures
- Infosys reported AI-related revenue at 8.2% of June-quarter revenue; TCS reported annualised AI revenue of $2.6 billion.
- Managed-services outlook
- Gartner estimates up to 50% of traditional managed-services opportunities could be difficult for incumbent providers to obtain by 2030.
- FY28 outlook
- UnearthInsight expects a slight recovery, with growth around 6%.
- Earnings dates
- TCS is scheduled for October 8, HCLTech for October 12 and Infosys for October 23.
Quotes
Biswajit Maity
Senior Principal Analyst at Gartner
“Q2 is not going to be any better than Q1... because we are not seeing any revival in client budgets or spending. Discretionary spending remains stuck amid geopolitical tensions, and decision cycles also remain long.”
rediff.com
“As a result, spending is improving gradually, but the overall demand environment remains disciplined rather than fully recovered.”
rediff.com
Sources
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