Indian IT companies brace for soft first quarter amid AI and demand pressures

NEW DELHI: India’s leading information technology companies are expected to post another weak quarterly performance as pressure from artificial intelligence-led pricing changes, cautious client spending and global geopolitical uncertainty continue to weigh on the sector.

The April-to-June period is typically a stronger quarter for India’s $315 billion IT industry because of a higher number of billing days and the start of new projects. However, analysts expect a slow opening to the fiscal year, delaying expectations of a broader recovery. Tata Consultancy Services is due to begin the earnings season on Thursday, with Infosys, HCLTech and Wipro set to announce their results later this month.

Brokerage estimates suggest the top six Indian IT firms will show about 14% year-on-year revenue growth in rupee terms, while net profit is expected to rise by 12% to 13%. But this increase would largely reflect the sharp depreciation of the rupee. Excluding exchange-rate effects, the companies are projected to record only 2.8% revenue growth in constant-currency terms.

Citi expects Indian IT companies to face a fourth consecutive year of subdued growth. JPMorgan also sees revenue expansion remaining below 3% to 4% for the foreseeable future.

AI transition and weaker spending in focus

The sector is adjusting to changing customer demand as companies worldwide increasingly use AI tools and agents to reduce costs and speed up software development. Indian software firms have also slowed hiring amid this shift. TCS Chairman N Chandrasekaran said the "day is not far" when the company would have an equal number of AI agents and employees.

Nomura said in its earnings preview that Indian IT firms were in a “perfect storm”, with uncertainty linked to conflict in the Middle East adding to AI-related pricing pressure. Concerns that AI could disrupt the sector’s traditional labour-intensive business model pushed the Nifty IT index down 9.5% in the June quarter, even as India’s benchmark Nifty 50 rose 6.9%.

The IT index has fallen about 28% so far in 2026, making it the worst-performing major sector in India. PL Capital said the effect of AI-driven disruption and weak client spending is expected to be broad-based, with pressure visible in the consumer, hi-tech and telecom segments.

In a note, the brokerage said "Slower decision-making and elongated sales cycle are leading to delays in revenue conversion and execution" highlighting the strain on business momentum.

Guidance under investor scrutiny

Annual revenue guidance is expected to be one of the main issues for investors this earnings season. Brokerages said Infosys and HCLTech may either narrow their forecasts or cut the upper end of their guidance ranges.

Another concern for the sector is the possibility of higher interest rates in the United States, which accounts for around 60% of the revenue earned by Indian IT firms.