Stories
Indian IT Firms Brace for Slow Q2 Amid Weak Client Spending, AI Impact
- •India's top IT firms anticipate muted revenue growth and stable margins in Q2 FY27 due to continued weak discretionary tech spending by clients.
- •Analysts will focus on how quickly strong deal bookings translate into revenue and the impact of AI on traditional IT services demand.
- •UnearthInsight projects 0.5-1% quarter-on-quarter revenue growth for the top five IT companies, with no significant improvement from Q1.
- •Gartner expects Q2 to be "somewhat stronger" due to previously awarded contracts, but market conditions remain cautious with a focus on productivity.
- •Margins are expected to remain under pressure due to wage hikes, AI investments, and efficiency gains being passed to clients, though some tier-one players may see slight improvements.
Key Questions Answered
Research advisory UnearthInsight expects the top five IT companies to post quarter-on-quarter revenue growth of 0.5 to 1 per cent in the second quarter of FY27, with little improvement from the previous quarter. Analysts note that client discretionary spending remains under control amid geopolitical tensions and long decision cycles.
The Q2 earnings season will kick off with Tata Consultancy Services (TCS) on October 8, followed by HCLTech on October 12 and Infosys on October 23.
Generative and agentic AI are beginning to materially reduce demand for labor-based services, particularly in managed services and service desk functions. While AI-related revenue is growing, it currently remains below 5 per cent of the industry's total topline, and efficiency gains are frequently passed on to clients.
