AI Deals to Drive Indian IT Growth Amid Muted Q2
Centrum report suggests AI-led deals will drive medium-term growth for Indian IT companies despite subdued near-term revenue projections.
India’s IT services sector is bracing for a quiet second quarter of FY27, but a massive wave of artificial intelligence opportunities is expected to fuel long-term expansion, according to a recent report by Centrum.
Near-Term Slump Amid Client Caution
The demand landscape has remained largely stagnant over the last three months. Clients are reportedly exercising caution regarding AI adoption, leading to longer decision-making timelines that are weighing heavily on immediate growth prospects. This hesitation is expected to result in subdued revenue growth for major players in the upcoming quarter.
Centrum projects the following sequential revenue growth in US dollar terms for the quarter:
- Infosys: 1.1%
- HCL Tech: 1.9%
- TCS: 0.4%
- Tech Mahindra: 1.3% decline
- Wipro: 0.6% decline
Tier 2 Companies Show Resilience
While Tier 1 giants face a slow period, Tier 2 companies are expected to show more movement. The brokerage anticipates sequential growth in US dollar terms for several mid-sized players:
- Persistent Systems: 6%
- Coforge: 3.1%
- Happiest Minds: 2.3%
- Mphasis: 1.9%
- L&T Technology Services: 1.7%
- LTIMindtree: 1.1%
The $400 Billion AI Opportunity
Despite the current lull, the outlook for the medium term is bright, driven by the ongoing AI technology cycle. Centrum predicts that the AI-led services market could soar to a staggering USD 300-400 billion by 2030, positioning AI-related deals as the primary engine for incremental business growth.
Currently, most newly signed deals are focused on two main areas: cost optimization and vendor consolidation. While deal booking remains healthy, the conversion of total contract value into actual revenue is currently soft, indicating that projects are ramping up slowly.
Sector Trends and Margin Outlook
The report highlights a mixed bag in terms of sector-specific spending. There has been a marginal improvement in discretionary technology spending within the Banking, Financial Services, and Insurance (BFSI) and technology sectors. Conversely, spending in the manufacturing and automotive industries remains weak.
Regarding profitability, operating margins across the sector are expected to remain stable in Q2FY27. This stability is being supported by a 1% depreciation of the rupee against the US dollar, though these gains may be partially offset by the heavy investments required for AI integration.
To protect and improve margins, IT firms are turning to several strategies, including:
- Increased use of AI tools to enhance efficiency.
- Higher employee utilization rates.
- Strategic shifts in the employee mix.
As the industry moves forward, market observers will be closely watching management commentary regarding demand, FY27 revenue guidance, offshoring, and hiring patterns to gauge the true recovery trajectory.