India's IT services companies are expected to report subdued revenue growth in the second quarter of fiscal year 2027, according to a new report. However, the surge in artificial intelligence-related deal activity is anticipated to drive growth over the medium term, reflecting a strategic pivot toward emerging technology trends.
- Q2FY27 revenue growth projected to be modest across most Indian IT companies
- AI-driven deals expected to be key growth drivers by 2030
- Client demand cautious amid longer decision-making timelines
What happened
India's IT services sector is set for modest performance in the second quarter of fiscal 2027, with a broadly unchanged demand environment reported over the past three months. Clients remain cautious about adopting artificial intelligence, leading to delays in decision-making and softer near-term growth prospects. Despite this, deal bookings have continued at a healthy pace, underpinned by a robust pipeline across most major IT companies in the country.
The report highlighted that recently signed contracts primarily focus on cost optimization and vendor consolidation strategies. However, there is a lag in converting total contract value into immediate revenue, signaling that new deals are in the early stages of ramp-up. Major companies, including TCS, Infosys, HCL Tech, Wipro, and Tech Mahindra, are expected to experience only slight sequential revenue changes in US dollar terms during the quarter.
Why it matters
The Indian IT sector's muted near-term revenue growth reflects cautious client approaches amid economic uncertainties and technology adoption challenges. However, the rise in artificial intelligence-related engagements points to an important inflection point where new technologies could drive industry transformation. The anticipated AI-led services market size reaching USD 300-400 billion by 2030 underscores the significant potential for Indian IT firms to capitalize on emerging trends.
Furthermore, stable operating margins supported by currency advantages and ongoing margin improvement efforts—such as increased AI tool utilization and workforce optimization—indicate that companies are strategically positioning themselves for longer-term profitability. The sector's ability to convert AI deal momentum into tangible revenue growth will be crucial for sustaining competitive advantage and market leadership moving forward.
What to watch next
Key areas to monitor include management commentary on demand trends, revenue, and margin guidance for fiscal year 2027, as well as progress on offshoring strategies, hiring plans, and deal conversion rates. The sector's outlook is expected to improve incrementally as AI-related contract activities gain traction, potentially reversing the current muted growth pattern by later quarters or next fiscal year.
Investors and industry observers should also watch how Tier 2 companies perform sequentially, as some like Persistent Systems and Coforge are forecasted to show stronger quarterly growth rates compared to Tier 1 peers. Additionally, discretionary technology spending improvements in the BFSI and technology segments may provide further momentum, even as manufacturing and automotive sectors continue to lag.