New Delhi: India’s top IT companies are likely to report muted revenue growth and broadly steady margins for the July-September quarter as clients keep discretionary budgets tight, with focus on how quickly strong bookings turn into revenue and how far AI is deflating traditional services, analysts said.
Research advisory UnearthInsight expects the top-five IT companies to grow 0.5-1 per cent quarter-on-quarter in the second quarter of FY27, with little improvement over the April-June period.
“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,” Gaurav Vasu, Founder and CEO of UnearthInsight, said.
Gartner sees the quarter as “somewhat stronger” than the previous one. It said this is largely on the back of previously awarded contracts moving into revenue-generating phases.
“However, market conditions remain broadly unchanged, with cautious discretionary spending and continued focus on productivity outcomes influencing purchasing decisions.
“…Based on current market trends, growth among leading IT services providers is expected to remain modest,” Gartner Senior Principal Analyst Biswajit Maity said.
Vasu said bookings would remain strong but take longer to convert into revenue, with decision cycles expected to stay long for the next 12-18 months.
The Q2 earnings season begins with Tata Consultancy Services (TCS) on October 8. HCLTech is scheduled to report on October 12 and Infosys on October 23.
Vasu said he did not expect major revisions to FY27 guidance, although a select set of companies may raise the top end by around 0.5 per cent.
UnearthInsight maintained its full-year growth estimate of 3-4 per cent for the top firms and said much of that would come from inorganic growth rather than a pickup in demand. The tech services industry has spent USD 3.6 billion across 14 M&A deals so far in FY27, he said.
Vasu said margins would remain under stress. Wage hikes have only recently been absorbed, and investments in AI platforms and partnerships now have to be built into deals to win them. Efficiency gains from AI are also being passed back to clients.
“The real cushion for margins will come from selling applications and platforms rather than just services,” he said. UnearthInsight expects margins to improve slightly for select tier-one players such as TCS, Infosys and HCLTech. It expects mid-tier firms to sustain their current margins as they also absorb M&A integration costs.
Gartner expects margins to remain broadly stable, with limited room for expansion. It said productivity gains from automation and improving utilisation were being offset by AI investments, wage inflation for in-demand skills and client demands for pricing concessions.
Maity said client technology spending remains cautious, with organisations continuing to prioritise initiatives that deliver measurable business outcomes, cost optimisation, and risk reduction.
“Most organisations remain selective in their investment decisions, focusing on projects with clear ROI, productivity gains, and operational resilience. Demand continues to be driven by AI, cybersecurity, and modernisation initiatives, while discretionary transformation programs are still subject to tighter budget oversight and longer approval cycles. As a result, spending is improving gradually, but the overall demand environment remains disciplined rather than fully recovered,” he said.
Vasu said banking remained under stress, while retail and manufacturing were under pressure because inflation had not eased. He described the US as the weakest market. He said Europe would grow on the back of cost-optimisation deals and Asia Pacific would grow faster, while the Middle East would slow significantly because of the war.
Gartner sees the strongest demand from BFSI, healthcare, manufacturing and telecommunications, with retail, oil and gas comparatively softer. It said the US remained the strongest market, supported by investment in AI, cloud and digital transformation. It said Europe remained resilient on the back of regulatory, security and sovereignty-related spending.
On AI driving topline, Vasu said AI-led revenue remained under 5 per cent of the industry’s total. He said a growing share of client budgets in the US and Europe was going to native AI platforms and start-ups. He added that software vendors such as SAP and Oracle were selling more AI-embedded products, which reduced the need for traditional services.
Gartner said generative and agentic AI are beginning to “materially reduce” demand for labour-based services, especially in managed services and service desk functions. It estimates that by 2030, up to 50 per cent of traditional managed-services opportunities will be difficult for incumbent providers to obtain.
Companies have started disclosing AI revenue. In the June quarter, Infosys said AI-related revenue made up 8.2 per cent of its total revenue, and TCS reported annualised AI revenue of USD 2.6 billion.
Vasu said mid-tier firms would continue to outperform larger peers, though their growth would also slow. He said acquisitions by companies such as Coforge and Persistent would weigh on growth.
UnearthInsight expects a slight recovery in FY28, with growth of around 6 per cent.
