The Nifty IT index is down around 25% year to date, and the latest quarterly performance has done little to ease concerns about the sector’s growth outlook. Goldman Sachs has lowered its FY27 revenue growth forecast for its IT coverage universe to 2.1%, from 2.5% in June and 3.3% in April.
The brokerage has also warned that further earnings downgrades could follow as the year progresses.
Tech Mahindra leads the pack
Tech Mahindra was the strongest performer among the major IT companies in Q1FY27, recording revenue growth of 2.5%.
The company also flagged increasing competitive pressure in the market, with some vendors making aggressive claims about productivity benefits from artificial intelligence. This could add to pressure on deal pricing and the broader dynamics of large technology contracts.
Infosys and Wipro disappoint
Infosys and Wipro were among the major laggards during the quarter.
Infosys reported negative revenue growth excluding the impact of its acquisition, while its FY27 revenue growth guidance was reduced to 1.5%-3%. The company is expected to remain dependent on acquisitions to support its growth.
The company also announced Ashish Kumar Dash as its CEO-designate. He is set to take over from Salil Parekh when Parekh’s term ends in April 2027.
Wipro also delivered a weak performance, with the company facing the same demand pressures affecting much of the sector.
TCS, HCLTech see weak but expected performance
TCS and HCLTech reported subdued performances, although their results were broadly in line with already muted expectations.
HCLTech’s FY27 revenue growth outlook stands at 1.4%. The company’s planned investment of ₹3,500 crore in data centres as part of its artificial intelligence ecosystem strategy also raised concerns in the market.
TCS, meanwhile, added 9,300 employees during the quarter. This comes after the company was in the spotlight last year for workforce reductions and restructuring.
Project delays and cancellations remain a concern
The demand environment remains challenging across the sector.
TCS, Infosys, LTIMindtree and Wipro have all flagged project deferrals and deal cancellations. Companies have also pointed to weak discretionary spending and slower decision-making cycles.
There has been limited improvement in the broader macroeconomic environment, making it difficult for IT companies to deliver a meaningful acceleration in growth.
AI growth is strong but still small
Artificial intelligence continues to be a major growth opportunity for the sector, but its contribution to overall revenue remains limited.
AI-related revenue is growing at a double-digit pace for companies such as TCS, Infosys and HCLTech. However, it still accounts for only around 6%-8% of their overall revenue.
At the same time, productivity gains from AI are beginning to create deflationary pressure. This could reduce the amount of work and revenue generated for a given level of technology spending, creating a challenge for traditional IT services companies.
Earnings downgrade cycle may not be over
The combination of weak demand, project delays, deal cancellations and AI-led productivity gains is keeping pressure on the sector’s growth outlook.
FY27 is set to be the fourth consecutive year of very low single-digit revenue growth for Infosys. HCLTech’s growth outlook is also muted, while the broader industry continues to deal with a lack of discretionary spending.
With the Nifty IT index down sharply this year and Goldman Sachs cutting its growth estimates, investors are likely to remain focused on whether the earnings downgrade cycle has further to run.
For now, the Q1FY27 report card is clear: Tech Mahindra has emerged as the relative winner, while the rest of the sector continues to navigate weak demand, limited growth visibility and the growing impact of AI-driven productivity deflation.
