IT Sector Sees Subdued Growth in FY26, AI-Powered Rebound in Next Fiscal: Report

The Indian IT sector is experiencing subdued growth, with industry guidance and recent results pointing towards a muted outlook for FY26, though a recovery in FY27 is possible with recovery in key export markets and adoption of new technology.

According to HSBC Global Research, near-term discretionary spending among clients remains weak, but there are signs of acceleration in the next fiscal year, especially as adoption of artificial intelligence (AI) among enterprises gathers pace.

“While the near-term demand environment remains soft and unchanged, FY27 is likely to see pick-up in demand driven by recovery in the US macro and increase in demand from IT companies looking to drive enterprise scale AI adoption,” HSBC Global Research said.

Key indicators show that the Indian IT sector has faced challenges related to global macroeconomic uncertainty, client cost optimisation, and delayed decision-making. Major Indian IT firms such as TCS, Infosys, and HCLTech reported healthy large deal bookings and strong pipelines in the first quarter of FY26, yet actual revenue growth guidance remains restrained at 1–5% for the year.

Geopolitical tensions, supply chain challenges, and industry-specific factors (for example, caution in the BFSI and automotive verticals) continue to cause project deferrals or reduce discretionary spend.

Over the past year, the NSE IT index has underperformed broader Indian market benchmarks, reflecting investor caution amid uncertain growth prospects, even as bookings and deal pipelines remain robust for most large IT companies.

Industry analysis highlights AI as the central driver of the next growth cycle for Indian IT services. Management commentary from leading Indian and global IT firms suggests that most client AI projects to date have focused on productivity improvements but are increasingly shifting towards driving business growth.

Enterprise-scale AI adoption is anticipated to ramp up in FY27, providing a significant new opportunity for Indian IT providers to deliver transformation projects and managed services. Accenture, which has a substantial chunk of employees in India, nearly doubled Gen AI bookings to USD 5.9 billion in FY25 (September-August).

TCS reported a robust Q1FY26 TCV of USD 9.4 billion with a strong deal pipeline across verticals and geographies. However, macro uncertainty from conflicts, economic volatility, and supply chain issues caused project delays and deferrals.

Infosys reported strong Q1FY26 bookings with USD3.8 billion in large deals (28 deals, of which 55% is net new), including multiple vendor consolidation deals worth over USD 1 billion. The macro environment remains uncertain due to unresolved tariffs and geopolitical tensions, causing cautious client discretionary spending and delayed decision-making.

Wipro reported strong bookings of USD 5 billion Total Contract Value (TCV) with USD 2.7 billion large deals, including 16 large deals and two mega deals, driven by vendor consolidation and AI investments despite macro uncertainty keeping overall demand muted and clients prioritising cost optimisation.

Despite a challenging environment in the short term, sector commentary suggests a modest recovery is possible in FY27 as macroeconomic conditions stabilise in the US and Europe. The anticipated acceleration in demand for enterprise-scale digital transformation and AI-led projects could drive a 200–300 basis points improvement in revenue growth for Indian IT services companies.