Inside the client-spending playbook of India's largest IT companies

Over the past couple of weeks, four of the top five Indian IT services companies have shared their Q1FY27 results, with Tech Mahindra registering the highest sequential revenue growth of 2.6% (in constant currency terms) compared with peers such as TCS, HCLTech and Wipro, which posted revenue growth of 0.4%, -0.5% and -1.2%, respectively, during the quarter.

Two of the top five firms provide annual guidance. While Infosys will announce its numbers later this week on July 23, HCLTech has retained its previously stated constant currency revenue growth guidance of 1% to 4% for FY27, services revenue growth guidance of 1.5% to 4.5%, and an EBIT margin guidance of 17.5% to 18.5%. During the company's earnings call, C Vijayakumar, CEO & MD, told analysts that the macroeconomic situation was no different from where it stood in March this year and, therefore, the guidance remains unchanged for now.

The country's largest IT company, TCS, echoed a similar sentiment. K Krithivasan, CEO & MD, said that while geopolitical uncertainties increased around March this year, that sentiment continued through Q1FY27. Though the company saw a few clients defer decision-making, TCS remains optimistic about Q2. "We are still optimistic that the demand will resume at some time in Q2, primarily because our customers have a significant amount of pent-up technology backlog to be completed," he said during the earnings call.

Crisil Ratings, in its latest report on the IT sector, said growth during the current fiscal is expected to remain muted at around 1-3% due to AI-driven disruptions, weak discretionary spending and continuing geopolitical uncertainties. The analysis was based on India's top 26 IT services companies, which together account for 55% of the industry's estimated revenue of ₹16 lakh crore last fiscal. Anuj Sethi, Senior Director, Crisil Ratings, said the rising adoption of AI-native solutions is intensifying pricing pressure, triggering deal renegotiations and slowing execution as clients reassess technology spending.

Discretionary spending remains soft; clients reprioritising spends

The slowdown in decision-making in pockets, continued softness in discretionary spending and the reprioritisation of technology budgets are themes that companies also highlighted. However, the sectors impacted have varied across companies.

For instance, during Q1, TCS saw continued softness in its manufacturing vertical, which contracted 0.5% sequentially, particularly as auto clients delayed decision-making amid tariff pressures, macroeconomic uncertainty, EV recalibration, supply chain adjustments and cost discipline. However, TCS maintains a positive outlook for the segment, supported by several large deal wins.

In contrast, Tech Mahindra's manufacturing vertical grew 9% sequentially, aided by the aerospace sector and an accelerated project rollout by a European client. For HCLTech, whose Engineering and R&D business has greater exposure to discretionary spending, softness persisted as sharp cuts in discretionary spending by two large US telecom clients continued to weigh on segment revenue.

During the company's recent earnings call, contextualising the current deal environment, Venu Lambu, CEO & MD of LTIMindtree, said that while discretionary spending is "not back to its full glory", the expectation is that it will improve in the second half of the year from a client spending perspective.

After clocking yet another quarter of more than $1 billion in TCV, Lambu said, "Within the limited addressable spend that is available, within the budget that clients are prioritising, our approach is to win most of that and that is why our deal momentum is steady, and that is actually seen as a positive."

Wipro, on the other hand, which posted the sharpest sequential revenue decline among peers this quarter at -1.4%, has also guided for a weaker Q2FY27. The company expects next quarter's revenue to be in the range of -1.5% to 0.5% in constant currency terms.

During the analyst call, Srini Pallia, CEO & MD, attributed slower client decision-making to prevailing uncertainty, while noting that technology investments are becoming increasingly focused on AI, data, cloud, modernisation, cybersecurity and productivity-led transformation.

"Discretionary spend has been slower and some of the decision-making has been slower, but we think it will come back," he said.

Pallia added that some clients are reinvesting cost savings into AI capabilities. "That's where I think the new transformation projects and discretionary spend will come back. That's how we see it. The demand environment remains soft and that has reflected in our quarter two guidance," he said.