Indian IT firms brace for muted Q1 earnings as AI disruption erases Rs 17 lakh crore in value

Indian IT firms face muted Q1 as AI shift, weak demand weigh

BENGALURU, July 6 (Reuters) - India's top information technology companies are expected to report another subdued quarter, as AI-driven pricing pressure, weak client spending, and global geopolitical turmoil continue to weigh on growth, nine brokerages said. The April-to-June quarter is usually a strong one for India's $315 billion IT sector, helped by higher billing days and new project starts, but analysts expect a slow start to the fiscal year that would push back hopes of a recovery. India's ⁠largest IT services company, Tata Consultancy Services (TCS.NS), opens new tab, kicks off earnings on Thursday with peers Infosys (INFY.NS), opens new tab, HCLTech (HCLT.NS), opens new tab and Wipro (WIPR.NS), opens new tab reporting later this month. While India's top six IT firms are expected to report around 14% year-on-year revenue growth in rupee terms with net profit rising 12%-13%, this would largely be due to the impact of sharp rupee depreciation. Stripping out exchange rate effects, the companies are expected to post a mere 2.8% revenue growth in constant-currency terms. Citi expects a fourth straight year of subdued growth for Indian IT firms, while JPMorgan sees revenue growth staying below 3%-4% for the "foreseeable future". The IT sector is racing to adapt to changing customer needs as companies across the globe step up the use of AI tools and ⁠agents to cut costs and quicken software development cycles. Software firms have slowed hiring, with TCS Chairman N Chandrasekaran saying the "day is not far" when the company would have an equal number of AI agents and employees. Indian IT firms are in a "perfect storm," Nomura said in its earnings preview, with Middle East conflict-led uncertainty compounding AI-driven pricing pressure. Fears that AI would disrupt the IT sector's traditional, labour-intensive ⁠business model dragged the Nifty IT index (.NIFTYIT), opens new tab down 9.5% in the June quarter even as India's benchmark Nifty 50 (.NSEI), opens new tab gained 6.9%. The IT index has slumped about 28% so far in 2026, making it the worst-performing major sector in India. The impact of AI-led disruption and ⁠weakness in client spending will be broad-based, according to PL Capital, with effects visible in the consumer, hi-tech, and telecom verticals. "Slower decision-making and elongated sales cycle are leading to delays in revenue conversion and execution," the brokerage said in a ⁠note. Annual revenue forecasts will be a key focus for investors. Brokerages say Infosys and HCLTech could narrow or trim the upper end of their forecasts. Potentially higher interest rates in the U.S., which makes up about 60% of Indian IT firms' revenue, also loom. Reporting by Haripriya Suresh and Bharath Rajeswaran in Bengaluru; Editing by Mrigank Dhaniwala Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * India Haripriya Suresh Thomson Reuters Haripriya reports on India's $254-billion Indian information technology (IT) industry, the country's burgeoning GCCs, as well as new-age startups. With seven years of experience, she has previously reported on politics, civic issues, crime, and breaking news in south India, and tracked the country's gig economy. She has a degree in Media Studies with a specialisation in journalism from the Symbiosis Centre for Media and Communication.

The Q1 verdict: Can TCS, Infosys, other IT results stop a Rs 17 lakh crore AI-led rout?

India's top IT firms like TCS and Infosys face a crucial earnings season after a massive Rs 17 lakh crore market value erosion. Analysts anticipate muted results and weak future guidance, citing client spending slowdowns, pricing pressures, and the disruptive impact of AI. Investors are keenly watching if current valuations reflect the anticipated slower growth cycle. India's IT stocks enter the June-quarter earnings season with little room for disappointment. The sector has already suffered one of its sharpest corrections in years. TCS, Infosys, Wipro and LTIMindtree are now down at least 50% from their all-time highs, while the broader pack has seen a steep erosion in market value. Across 10 major IT companies, the combined market-cap loss from peak levels is estimated at more than Rs 17 lakh crore. TCS has seen the biggest destruction in absolute value. The stock has fallen about 56% from its all-time high of Rs 4,592.25 in August 2024 to Rs 2,033. Its market cap has dropped from Rs 16.48 lakh crore to Rs 7.36 lakh crore, wiping out more than Rs 9.12 lakh crore. Meanwhile, Infosys has nearly halved from its peak of Rs 2,006.45 in December 2024 to Rs 1,006, while its market value has fallen to Rs 4.08 lakh crore from Rs 8.30 lakh crore. Wipro is down 54% from its peak, while LTIMindtree has lost more than 53%. HCL Tech, Persistent Systems, Mphasis and Tech Mahindra have also seen sharp declines. This makes the upcoming earnings season important, but brokerages are not expecting a quick recovery. Why are there muted expectations?Morgan Stanley says IT companies are likely to see a muted first quarter and subdued commentary for the second quarter. It sees risks to FY27 revenue guidance ranges and has lowered estimates for large-cap IT companies. The brokerage has also downgraded TCS to equal-weight, saying the stock's premium to Accenture has risen above 40%, putting the group's valuations at risk. It expects organic revenue growth for most large-cap IT firms to drift towards 1.5-3.5%, except Wipro, where it sees a decline. The pressure is not just from weak discretionary spending. The sector is also dealing with slower decision-making by clients, pricing pressure on contract renewals and rising investments in artificial intelligence services. These factors are likely to keep growth weak even in a quarter that is usually seasonally stronger. Also Read: Reliance market value now equals India's top five IT companies combined Kotak Equities expects June-quarter revenue growth of -1% to +1% for large IT companies. It expects HCL Tech's services business to decline 1%, Wipro to fall 1.1%, TCS to report flat revenue and Infosys to post only 1% organic growth quarter-on-quarter. Tech Mahindra may do slightly better, with 1% sequential growth. Kotak said the West Asia crisis and AI-led deflation are starting to affect growth. AI risks and moreAI has become the biggest debate around the sector. Until recently, artificial intelligence was seen as a new opportunity for Indian IT firms. Now, investors are worried that it may first hurt revenue by forcing companies to pass productivity gains back to clients. Kotak has moved its GenAI deflation assumption to the upper end of the 3-3.5% range and cut fair values by up to 21%. Nomura framed the issue more directly, asking whether quarterly earnings matter as much anymore when investors are focused on AI and macro risks. The brokerage said the Nifty IT index has underperformed the broader Indian market by 20% since January 1 this year, mainly because of P/E derating linked to AI obsolescence fears. It still believes the long-term market for Indian IT will expand, but near-term growth is likely to remain weak. Also Read: Investors looking for shelter from AI storm are turning to India Short-term takeThe near-term view is similar across most brokerages. Motilal Oswal expects demand commentary to remain soft as macro uncertainty, AI and geopolitical concerns weigh on discretionary spending. It sees constant-currency growth for large-cap IT companies in a range of -1.5% to 2%. It expects the soft start to extend into the second quarter as well. The brokerage said the top end of FY27 guidance may become difficult to defend if the first half remains below the required run rate. Margins may offer some support, but not enough to change the broader story. A weaker rupee has helped cushion margin pressure for some companies. Kotak noted that the rupee depreciated 2.6% quarter-on-quarter and 9.7% year-on-year, helping offset pricing pressure. But wage hikes, weak operating leverage, AI investments, restructuring costs and hedging losses could weigh on profitability. Systematix expects margins for large IT services companies to decline by 10-100 basis points quarter-on-quarter, excluding Tech Mahindra. All eyes on guidanceInfosys may either narrow or slightly revise its FY27 growth band, depending on the brokerage view. Morgan Stanley expects it to tighten guidance to 2-3.5%, including 1 percentage point from inorganic activity. Kotak expects a revision to 2-3.5% from 1.5-3.5%, while Nuvama expects an upgrade to 2.5-4%, including acquisition contribution. HCL Tech is largely expected to retain guidance, though several analysts believe growth may land below the midpoint. Wipro is expected to guide for weak second-quarter growth, with estimates ranging from -2% to +1%. One clear theme is the growing gap between large-caps and mid-tier IT companies. Most brokerages expect mid-caps to keep outperforming. Morgan Stanley prefers Mphasis and Coforge over engineering R&D plays. Kotak favours Coforge, Hexaware and Indegene among challengers. Nuvama expects Tier-2 companies to outpace Tier-1 firms, helped by stronger deal ramp-ups and select pockets of demand. The June-quarter numbers may not rev up sentiment by themselves. But they will show whether the Rs 15 lakh crore crash has already priced in the pain, or whether investors still need to adjust to a slower, more uncertain IT cycle. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)