Indian IT firms face muted Q1 as AI shift, weak demand weigh

By Haripriya Suresh and Bharath Rajeswaran

BENGALURU, July 6 (Reuters) - India's top information technology companies are expected to report another subdued quarter, as AI-driven pricing pressure, weak client spending, and ‌global geopolitical turmoil continue to weigh on growth, nine brokerages said.

The April-to-June quarter is usually ‌a strong one for India's $315 billion IT sector, helped by higher billing days and new project starts, but analysts expect a ​slow start to the fiscal year that would push back hopes of a recovery.

India's largest IT services company, Tata Consultancy Services, kicks off earnings on Thursday with peers Infosys, HCLTech and Wipro reporting later this month.

While India's top six IT firms are expected to report around 14% year-on-year revenue growth in rupee terms with ‌net profit rising 12%-13%, this would largely ⁠be due to the impact of sharp rupee depreciation. Stripping out exchange rate effects, the companies are expected to post a mere 2.8% revenue growth in constant-currency ⁠terms.

Citi expects a fourth straight year of subdued growth for Indian IT firms, while JPMorgan sees revenue growth staying below 3%-4% for the "foreseeable future".

The IT sector is racing to adapt to changing customer needs as companies across ​the ​globe step up the use of AI tools and ​agents to cut costs and quicken software development ‌cycles.

Software firms have slowed hiring, with TCS Chairman N Chandrasekaran saying the "day is not far" when the company would have an equal number of AI agents and employees.

Indian IT firms are in a "perfect storm," Nomura said in its earnings preview, with Middle East conflict-led uncertainty compounding AI-driven pricing pressure.

Fears that AI would disrupt the IT sector's traditional, labour-intensive business model dragged the Nifty IT index down 9.5% in the ‌June quarter even as India's benchmark Nifty 50 gained 6.9%.

The ​IT index has slumped about 28% so far in 2026, ​making it the worst-performing major sector in ​India.

The impact of AI-led disruption and weakness in client spending will be broad-based, according ‌to PL Capital, with effects visible in ​the consumer, hi-tech, and telecom ​verticals.

"Slower decision-making and elongated sales cycle are leading to delays in revenue conversion and execution," the brokerage said in a note.

Annual revenue forecasts will be a key focus for investors. Brokerages ​say Infosys and HCLTech could narrow ‌or trim the upper end of their forecasts.

Potentially higher interest rates in the U.S., which ​makes up about 60% of Indian IT firms' revenue, also loom.

(Reporting by Haripriya Suresh ​and Bharath Rajeswaran in Bengaluru; Editing by Mrigank Dhaniwala)