Inside the Story
- India’s major IT companies are preparing for a subdued Q2 FY27 earnings season amid cautious client spending.
- AI is increasing productivity but also putting pressure on traditional IT-service pricing and contracts.
- Analysts expect low-single-digit sequential revenue growth for several major IT companies.
- The results will provide clues about AI demand, deal conversions, margins and the sector’s growth outlook.
The Story
Introduction
India’s information technology sector is entering the second quarter of FY27 (Q2 FY27) with businesses and investors closely watching how artificial intelligence is changing the economics of traditional IT services. Major companies including Tata Consultancy Services (TCS), Infosys,
HCLTech, Wipro and Tech Mahindra are preparing to report their July–September 2026 results amid cautious client spending,
macroeconomic uncertainty and increasing AI-led pricing pressure. According to Reuters, five brokerages expect another weak quarter for India’s major IT companies, with sequential revenue growth for the top six firms estimated at roughly 0.7% to 3.5%. Analysts also expect companies to remain under pressure as clients seek greater productivity and cost savings from AI.
The situation is particularly important because India’s IT-services industry has traditionally relied heavily on billing based on employee hours. AI tools can automate parts of software development and other business processes,
creating opportunities for companies while simultaneously making clients less willing to pay traditional rates.
TCS is scheduled to begin the major IT earnings season on October 8, 2026, with Infosys, HCLTech and Wipro expected to report later in the month.
Background: How AI Is Changing IT Services
India has built a major global IT-services industry around software development, consulting, cloud services, business-process management and technology outsourcing. Companies have traditionally supplied large teams of engineers and specialists to international clients.
Generative AI and automation are changing that model.
Reuters reported in August that Indian IT companies are increasingly restructuring contracts around business outcomes rather than hours worked. Clients are seeking greater productivity from AI while expecting service providers to share some of the resulting savings through lower prices.
This creates a complicated situation for IT companies.
AI can help service providers complete work faster, automate repetitive processes and develop new services. At the same time, if fewer employee hours are required to complete the same project, the traditional billing model can generate less revenue.
Reuters reported that Persistent Systems’ CEO said some clients were demanding the same work for 25% to 30% less, while expecting faster delivery and higher productivity.
Main Development: Q2 FY27 Under Pressure
The September quarter is normally an important period for India’s IT companies because it falls within the first half of the financial year and generally benefits from stronger project activity.
However, current expectations remain cautious.
Business Standard reported on October 2 that persistent macroeconomic uncertainty, geopolitical volatility and AI-led pricing and productivity pressures continue to affect demand. The publication expects Indian IT companies to report another quarter of low-single-digit sequential revenue growth.
Kotak Institutional Equities also expects muted Q2 FY27 growth among large IT companies. Its analysis cited AI-led productivity gains and pricing pressure as major factors, while noting that new AI-related revenue has not yet become large enough to fully offset pressure on existing business.
One of the key issues is what analysts describe as AI-led deflation. As AI improves productivity, clients may expect IT companies to deliver more work for the same budget or reduce the amount they pay for existing services.
Kotak estimates gross deflation of around 7% and net deflation of approximately 3.5% for IT companies. These are brokerage estimates, not reported industry-wide results, and should therefore be treated as forecasts rather than confirmed outcomes.
What Companies Will Be Watching
The Q2 results will provide more than just quarterly revenue and profit numbers. Investors and businesses will be watching management commentary on several areas.
1. AI Revenue
IT companies are investing heavily in AI services, including enterprise AI, automation, cloud modernization and industry-specific solutions.
The important question is whether these new services can generate enough revenue to compensate for pricing pressure in traditional services.
2. Deal Wins
Large contracts remain important, but the size of a contract does not necessarily translate immediately into revenue.
Kotak expects deal activity to vary across companies and has noted that AI-related productivity expectations can affect contract economics even when large deals are won.
3. Pricing Pressure
Clients increasingly want measurable savings from technology investments. This is pushing IT companies toward outcome-based contracts and more flexible pricing structures.
4. Hiring
AI automation could also influence future hiring patterns. Reuters reported that India’s traditional model of maintaining very large entry-level engineering teams is facing disruption as AI tools automate more basic coding and related tasks.
5. Future Guidance
Management commentary about the second half of FY27 will be particularly important. Analysts will be looking for signs of stronger demand, improving AI monetisation and better conversion of large contracts into revenue.
Industry Impact on India
The developments have implications beyond India’s listed IT companies.
The IT industry is a major employer and an important contributor to India’s services exports. Reuters notes that the sector employs nearly 6 million people in India.
For businesses, AI could reduce technology costs and improve productivity. Companies can potentially automate repetitive tasks, accelerate software development and use AI-powered systems to improve customer service and operations.
For IT service providers, however, the transition may require significant changes in skills, pricing models and workforce structures.
Smaller technology companies could also gain opportunities. Reuters reported that some mid-sized IT firms have been able to compete more aggressively by offering specialised AI capabilities, faster deployment and flexible pricing.
At the same time, large companies have advantages in global customer relationships, infrastructure, talent pools and the ability to invest heavily in AI.
What Comes Next?
The Q2 FY27 results will provide an important snapshot of how quickly AI is changing India’s technology-services business.
There are also signs that AI should not be viewed only as a threat. Accenture recently reported stronger-than-expected bookings and projected annual revenue growth of 3% to 6% for fiscal 2027, indicating that businesses are continuing to spend on technology, automation and AI-related transformation.
For Indian IT companies, the challenge is therefore two-sided: they need to protect existing revenue from AI-driven pricing pressure while developing new AI services capable of generating additional growth.
The September-quarter results should offer clearer evidence about whether that transition is beginning to translate into measurable revenue growth.
Conclusion
India’s IT sector is entering the Q2 FY27 results season at a time when artificial intelligence is changing how technology services are delivered, priced and measured.
AI is helping companies improve productivity and automate tasks, but it is also creating pricing pressure as clients expect more output at lower costs. The upcoming quarterly results from major IT companies will provide a clearer picture of demand, AI-
led revenue growth, deal activity and margins. For India’s IT industry, the key challenge will be balancing the benefits of AI-driven productivity with the changing economics of traditional technology services.
Technical Terms Explained
1. AI-Driven Productivity
The increase in work completed with the help of artificial intelligence. AI tools can automate coding, testing, data analysis and other repetitive tasks, allowing employees to complete projects faster.
2. Pricing Pressure
When customers push technology companies to reduce prices or provide more services for the same amount of money. AI can increase this pressure because it can reduce the time needed to complete certain tasks.
3. Outcome-Based Contract
A technology-services agreement where payment is linked to the results delivered rather than simply the number of employees or hours worked.
4. AI Deflation
A situation where AI-driven efficiency causes the price of technology services to decline because the same amount of work can be completed with fewer resources.
5. Revenue Growth
The increase in money a company generates from its business over a particular period. In IT, revenue growth is closely watched to understand whether demand for technology services is increasing.
6. Deal Wins
New contracts or projects secured by an IT company from customers. Large deal wins can provide future revenue, although the full contract value may not immediately appear in quarterly revenue.
7. Revenue Conversion
The process of turning signed contracts or bookings into actual reported revenue as the company delivers the contracted services.
8. Margins
The percentage of revenue a company retains as profit after accounting for relevant costs. AI can affect margins in both directions—automation may reduce delivery costs, while lower client pricing can reduce revenue per project.