The Indian IT sector is likely to register another muted results (July-September period), in what is typically a seasonally strong quarter, as deal wins remain soft, client decision-making stays cautious, and discretionary spending stays curtailed amid macro uncertainty, according to analysts.
Pricing pressure persists as AI-led productivity pass-through gets embedded into renewals and new deals, according to a note by HDFC Securities.
“Q2 FY27 (estimated) tier-1 growth is projected at -0.4 per cent to +2.0 per cent QoQ CC and mid-tier companies ranging from +0.6 per cent to +6.3 per cent, partly aided by acquisitions,” said the note.
With H1 tracking below expectations, the FY27 recovery rests on H2, which includes the seasonally soft furlough-impacted Q3, tempering full-year expectations.
Rupee depreciation, operational efficiencies, and elevated utilisation will offset the wage hikes impact, but AI-led deflation concerns continue to weigh on sector multiples, the note said.
Indian IT companies maintain that direct Gen-AI deployment by enterprises remains difficult in complex, regulatory-heavy brownfield environments, keeping the role of system integration (SI) vendors critical.
The expected 6-7 per cent deflation impact is being offset by net-new AI-centric deal wins, though conversion remains slow.
Growth recovery is a function of execution, as new deals are increasingly outcome-driven, pricing is agent-augmented, and renewals come at a discount, according to the note. Valuations remain near historical lows and FCF yields stay attractive, it added.
With Q2 earnings expected to be softer than Q1, market sentiment is likely to remain fragile.
Indian equities are likely to stay under pressure in the near term as a record global bond rout, renewed strength in crude and the heaviest foreign selling in six months weigh on sentiment, said analysts.
