AS THE FOURTH-QUARTER results season comes to an end for India’s IT sector, companies may resonate with T. S. Eliot, who called April the cruellest month. April saw the shares of Top 5 IT firms — TCS, Infosys, HCLTech, Wipro, and Tech Mahindra — fall in the subsequent trading session after the Q4 results.

It was reflective of a broader trend a few months ago when global IT stocks across major exchanges fell with every advanced AI (artificial intelligence) release. Their Indian counterparts, too, conformed to the negative correlation: the BSE IT index has fallen nearly 36% between January 2025 and April this year, against a 2.5% decline in the benchmark index during the same period.

For large-cap IT services firms, Q4FY26 results offered a mixed bag — while there was no strong growth, the business did not decline sharply and remained stable overall. With FY26 being a year of slow growth, without much deterioration in demand, Biswajit Maity, senior principal analyst at Gartner, says, “Most clients continued to invest in technology, but they were highly selective and cautious about where and how they spent it. Indian IT providers reported strong, large deal wins, indicating that clients still value long-term technology partnerships.”

Cautiously optimistic

Top IT bosses remain optimistic in general. Citing large deals signed in the past quarter, they maintain that there is no general demand downturn, barring client-specific reasons.

Among large IT firms, Infosys expects year-on-year revenue growth of 1.5-3.5% in constant currency terms in FY27. HCLTech pegs it at 1-4%, with IT services revenue growth at 1.5-4.5%.

A low single-digit growth guidance (in constant currency terms) reflects continued caution in discretionary IT spending, says Shashwat Singh, fundamental analyst, Bajaj Broking. “Demand is increasingly tilting towards AI-led transformation, productivity programmes, and vendor consolidation, while traditional discretionary digital spending remains subdued. Vertical-wise, financial services and energy appear relatively resilient, whereas manufacturing, telecom, and retail remain cautious due to macro uncertainties,” Singh says.

Meanwhile, TCS, despite reporting its first full-year revenue decline in the last fiscal, is bullish about FY27, betting on international growth. The optimism is also fuelled by its new data centre business, still in the build-out stage. According to CEO K. Krithivasan, while TCS is actively engaging across the full ecosystem of hyperscalers, semiconductor companies, and model providers, it will also be the integration partner across infrastructure, engineering, and AI-led services. “Demand signals remain strong and are translating into structured engagements and commitments, positioning TCS at the forefront of this build-out,” he said during the earnings call.

Wipro saw its full-year IT services revenue decline by 1.6% in FY26. In Q4, the Americas 2 business, its second-biggest strategic market unit, saw a 90-bps dip sequentially due to client-specific issues and delayed ramp-up. Acknowledging a competitive market, Srini Pallia, CEO and MD, said, “As far as geopolitics is concerned, we have not seen any clients at this point demonstrating any specific behaviour.”

Notably, none of these companies forecast a strong or immediate recovery in FY27. Large deals are out there, and it is expected that clients will continue to spend on technology, especially AI, cloud, and efficiency-focussed programs, but only in select buckets. But they remain cautious and selective. “Large deals are still being signed, showing long term confidence, though revenue growth is expected to build slowly as projects ramp up over time. Overall, the guidance indicates that the industry is moving in the right direction,” says Gartner’s Maity.

The AI deflation impact

In February this year, Jeffries Research, in a report specific to the Indian IT sector, noted that AI is likely to bring a structural change, with the business mix shifting towards advisory and implementation. It predicted a sharp revenue deflation (22-45%) in application-managed services. “The extent and timing of this deflation are likely to exacerbate as AI tools become better. Moreover, rising share of advisory and implementation engagements would not only increase the cyclicality in revenue growth but would also demand an overhaul of talent strategy and operating models,” the report noted.

As enterprise AI adoption gains traction, companies such as TCS and HCLTech have quantified their annualised AI revenues. For TCS, it has surpassed $2.3 billion, while HCLTech’s advanced AI revenue reached $620 million. Now, IT companies are also actively talking about the AI deflation effect.

While TCS’ Krithivasan refrained from specifically stating how the deflation cycle would play out for the company, he expects the AI revenues to increase going forward. Yet he also sees a tapering of some traditional revenue sources. But that is likely to be overcompensated by the AI revenue, he believes. “I’m not able to predict the timelines on how all these different cycles will move,” he said during the earnings call.

Others, with more visibility and clarity, have started factoring in its impact on growth. During the earnings call, C. Vijayakumar, CEO and MD of HCLTech, said he expected AI deflation to be around 3-5% based on the industry mix of services. Better and newer AI models are yielding more velocity and efficiency in the software development life cycle, he added. “I think that piece could go through a little higher deflation based on the model outcomes,” he said.

Salil Parekh, CEO and MD, Infosys, acknowledged the “revenue compression”. Though AI presents a growth opportunity, there are “other growth drivers”, he said at the earnings call. “Then there’s a compression side, and that’s the balance that we are seeing. In the past year, with 3.1% (revenue growth). If you adjust for the one-timers, the one-time from the prior year, we had a growth rate, which was more than the compression we were seeing.” This is something that the company has also included in the FY27 guidance.

Meanwhile, analysts at PL Capital said in a post-results note that the deflationary impact, coupled with geopolitical conflicts, poses an incremental risk to Infosys’ FY27E growth. This is being reflected in its organic revenue guidance (1.5-3.5% in CC). “However, the number of large deals wins at 96 (including three mega deals), and NN large deal TCV (large contract wins that come from entirely new projects or new clients) at $8.2 billion (+24% YoY) are encouraging, which appears to have misaligned with growth anticipation in FY27E,” the note reads.

Given the slower pace of enterprise adoption compared to the rate of AI evolution, the sale of AI services and related business models is only emerging. That’s also the reason why downside risks cannot be discounted in the short term. Bajaj’s Singh lists down the key risks: “AI-led revenue compression in traditional services, continued weakness in discretionary IT budgets, competitive pricing pressure, and macro uncertainties that could delay client decision-making”.

That said, even as the overall macro conditions and near-term AI deflation may persist as a headwind, the industry’s estimates on IT spending remain strong.

Gartner forecasts global IT spending to rise by over 10% from $5,564 billion in 2025 to $6,317 billion in 2026. A large chunk of the spending comes from continued investments in AI infrastructure and software, underscoring persistent market demand.

As AI reshapes the industry, FY27 could be when IT companies defend their core software and consulting revenues — despite looming cannibalisation — and transform themselves.