Global brokerages expect AI-led pricing deflation to significantly impact Q1 FY27 IT sector performance, with Citi, Jefferies, and CLSA projecting flat topline growth on a sequential basis for major IT companies. The consulting major Accenture Plc recently revised its earnings growth by 1% in the upper band, indicating weak demand with pricing fluctuations that are expected to cloud the IT sector's performance. According to latest reports, the Middle East region's demand is also expected to remain weak, contributing to the overall muted growth outlook. Multiple brokerages are projecting a mixed performance for Q1 FY27 IT earnings, with JM Financial expecting Q1 FY27 constant currency IT services revenue growth of 0.7% to 6.6% YoY for the top six companies, impacted by macro uncertainty and AI productivity despite a seasonally strong quarter.
India's IT sector enters the June-quarter earnings season with the NIFTY IT index soaring 2.5% on Tuesday morning as investors reassessed risks and value at current levels. The NIFTY IT index has fallen over 26% in 2026 on a YTD basis and trades 39% lower than the record high levels last touched in December 2024, with several IT stocks trading near their 52-week low levels. Since 2025, the IT sector has witnessed structural headwinds, starting from a high-interest-rate scenario in developing countries to advancements in Artificial Intelligence, with the structural changes and earnings impact in previous quarters repricing IT stock valuations. TCS has seen the biggest destruction in absolute value, falling about 56% from its all-time high of ₹4,592.25 in August 2024 to ₹2,033, with its market cap dropping from ₹16.48 lakh crore to ₹7.36 lakh crore, wiping out more than ₹9.12 lakh crore. Infosys has nearly halved from its peak of ₹2,006.45 in December 2024 to ₹1,006, while its market value has fallen to ₹4.08 lakh crore from ₹8.30 lakh crore.
Despite muted topline growth expectations, operating margins are expected to remain stable for IT majors amid favorable currency movements and cost optimization initiatives. At the company-specific levels, TCS, Infosys, and HCL Technologies are expected to maintain their margin range of 20% to 25%, with no major deviations. Analysts note that AI companies are repricing deals at lower price levels, indicating poor pricing dominance, which remains a key margin drag for the sector. "We expect margin across Tier I IT companies to remain broadly stable, supported by AI-led internal productivity gains, favourable FX movements and ongoing cost optimization initiatives, offset by continued investments in AI capabilities," said analysts at Choice Institutional Equities. Tech Mahindra may deliver around 1% growth on telecom deal ramp-ups, whereas HCL Technologies and Wipro are expected to report declines due to client-specific issues and delayed ramp-ups.
The June-quarter earnings season comes as the sector grapples with a fourth consecutive year of subdued growth expectations, with management commentary on FY27 growth, client spending and AI strategy expected to be the key driver of investor sentiment. Citi sees downside risk to FY27 consensus revenue expectations, particularly for TCS, HCLTech, LTIMindtree and Coforge. Jefferies expects Infosys to raise FY27 revenue growth guidance following acquisitions, while HCLTech is likely to maintain its guidance. Annual revenue forecasts will be a key focus for investors, with brokerages saying Infosys and HCLTech could narrow or trim the upper end of their forecasts. AI-led pricing pressure continues, though implementation opportunities could outweigh deflation over the next two to three years, as noted by CLSA. Investors will closely monitor FY27 guidance, deal conversion, pricing trends and the pace of AI monetisation, with AI concerns continuing to weigh on valuations, though any evidence of monetisation could improve sentiment. TCS kicks off earnings on July 9 with peers Infosys, HCLTech and Wipro reporting later this month, making this a critical period for the sector's recovery prospects.
