Indian IT Firms Brace for Muted Q2 Growth
Cautious client spending, longer deal cycles and AI-led pricing pressure are expected to limit September-quarter growth at major technology services companies.
India’s leading information technology services companies are expected to report muted revenue growth in the July-September quarter of FY27 as clients remain cautious about discretionary technology spending. Analysts expect broadly stable margins, with wage increases, investments in artificial intelligence platforms and pricing pressure limiting the scope for improvement.
Research advisory UnearthInsight expects the five largest Indian IT companies to report sequential revenue growth of around 0.5% to 1% in the second quarter, indicating little improvement from the April-June period. Founder and CEO Gaurav Vasu said client budgets have yet to recover meaningfully, while geopolitical uncertainty and prolonged decision-making cycles continue to delay spending.
Gartner expects the quarter to be somewhat stronger than the previous one as contracts awarded earlier begin generating revenue. However, the research firm said customers continue to prioritise projects that deliver measurable business outcomes, productivity gains, cost optimisation and operational resilience rather than committing broadly to discretionary transformation programmes.
The September-quarter earnings season begins with Tata Consultancy Services on October 8, followed by HCLTech on October 12 and Infosys on October 23. Investors will focus on revenue growth, large-deal bookings, the pace at which contracts convert into revenue and any changes to full-year guidance.
Analysts expect deal bookings to remain relatively strong, but warn that conversion into revenue could take longer as clients extend approval processes. UnearthInsight expects the subdued demand environment to persist over the next 12 to 18 months and has retained its FY27 growth estimate of 3% to 4% for leading IT companies, with acquisitions expected to contribute significantly to growth.
Profitability is another key concern. Wage hikes, investment in AI platforms and partnerships, and customer demands for pricing concessions are likely to offset some of the benefits from automation and improved utilisation. Gartner expects margins to remain broadly stable, while UnearthInsight sees scope for slight improvement at selected large companies, including TCS, Infosys and HCLTech.
Artificial intelligence is also reshaping demand for traditional IT services. Companies are increasingly using AI to improve productivity, but some of the resulting savings are being passed on to clients through lower prices. Gartner warned that generative and agentic AI could reduce demand for labour-intensive services, including managed services and service-desk operations, increasing pressure on traditional billing models.
Demand conditions vary by sector and geography. Analysts cited relatively strong opportunities in banking and financial services, healthcare, manufacturing and telecommunications, while retail and oil and gas remain comparatively softer. The overall outlook remains cautious, with a more meaningful recovery dependent on improved client budgets, faster deal conversion and the ability of IT firms to generate new revenue from AI-led services.