AI deals seen driving medium-term growth as Indian IT sector faces muted Q2: Report
India's IT services sector is likely to see muted performance in the second quarter of FY27, but increasing traction in artificial intelligence-related deals could support growth over the medium term, Centrum said in a report.
India's IT services sector is projected to experience modest growth in the second quarter of FY27, according to a report by Centrum. However, increasing traction in artificial intelligence (AI)-related deals could serve as a catalyst for medium-term growth. The report highlights that client caution surrounding AI adoption and extended decision-making timelines have dampened near-term performance.
Despite this, Centrum anticipates healthy deal booking and a robust pipeline across most IT services firms. AI-led services are expected to significantly contribute to business growth over the medium term, with the AI services market projected to reach USD 300-400 billion by 2030.
However, Tier 1 IT companies are forecasted to witness subdued revenue growth in the near term, with sequential revenue growth of 0.4% for TCS, 1.1% for Infosys, 1.9% for HCL Tech, a 0.6% decline for Wipro, and 1.3% for Tech Mahindra in Q2FY27. Among Tier 2 companies, LTIMindtree is expected to grow 1.1%, L&T Technology Services 1.7%, Coforge 3.1% organically, Persistent Systems 6%, Mphasis 1.9%, and Happiest Minds 2.3% sequentially in US dollar terms.
Recent deals signed by companies primarily focus on cost optimization and vendor consolidation. The conversion of total contract value into revenue remains soft, indicating that deals are progressing gradually. Discretionary technology spending in the banking, financial services, and insurance (BFSI) and technology sectors shows a marginal improvement, although manufacturing and automotive sectors remain challenged.
Centrum anticipates operating margins to remain stable across the sector in Q2FY27, supported by a 1% depreciation in the rupee against the US dollar. However, this could be partly offset by investments in AI. Companies are also aiming for margin improvement through better utilization of AI tools, higher usage, and changes in their workforce composition.
In the future, Centrum believes that management commentary on demand, FY27 revenue and margin guidance, offshoring, hiring, and deal booking will be crucial. The brokerage expects the sector's outlook to improve incrementally in FY27, driven by growing traction in AI-related deals.
Written by urgent.news from Economic Times Tech's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
